Preamble

The House met at half-past Two o'clock

PRAYERS

[Mr. SPEAKER in the Chair]

Oral Answers to Questions — EMPLOYMENT

Foreign Domestic Workers

Mr. Ovenden: asked the Secretary of State for Employment if he will review the system of granting permits to domestic workers from overseas with a view to eliminating the exploitation of such workers.

The Under-Secretary of State for Employment (Mr. John Fraser): My Department has recently carried out a review of this and various other aspects of the work permit scheme, and has sent proposals for a number of new safeguards to the CBI, TUC and Manpower Services Commission. I am now awaiting their comments and hope to make an announcement in the near future.

Mr. Ovenden: I thank my hon. Friend for that answer. Does he accept that his Department is responsible for ensuring that the conditions for foreign workers are fair, and will he accept that the onus for proving that such conditions are fair should rest upon the employer who is seeking to bring foreign labour into the domestic trade? Will he consider establishing a system of compulsory registration for agencies involved in this business, so that the worst of them can be eliminated?

Mr. Fraser: I accept that responsibility and I am anxious to ensure that there is no exploitation of foreign workers. As for the agencies, we intend to tighten up the regulations to control agencies and to make sure that people are not exploited by having to repay excessive fares. I accept responsibility for trying to improve conditions for foreign workers.

Equal Pay

Mr. Bryan Davies: asked the Secretary of State for Employment whether he intends to use the services of the proposed Equal Opportunities Commission to ensure that the objectives of the Equal Pay Act 1970 are fulfilled.

Mr. John Fraser: Yes, Sir. The main responsibilty for enforcement of the Equal Pay Act will rest with the industrial tribunals, but as the White Paper on "Equality for Women" indicates, it is envisaged that the Equal Opportunities Commission should have the power to assist individuals in presenting complaints and conducting legal proceedings, and that it should advise the Government about the operation of the Equal Pay Act.

Mr. Davies: I thank my hon. Friend for that reply. Does he agree that the Act needs the most careful monitoring, which will require all support at this difficult time? Does he accept that the Act also involves the principle of unimpeded progress towards majority rule?

Mr. Fraser: The last principle is one which one always supports. The Act needs monitoring, and my Department does that. My hon. Friend will have noticed that through advertisements we have been most anxious to draw the requirements of the Act to the attention of employers and employees.

Mr. Fell: Is the Under-Secretary saying that his right hon. Friend the Secretary of State supports majority rule, or that he supports minority rule?

Mr. Fraser: I am sure that the hon. Member for Yarmouth (Mr. Fell) will have the chance to put that question later.

Mr. Leslie Huckfield: My hon. Friend's reply betrays more than a hint of male chauvinism. Does he recognise that many women simply will not go to the industrial tribunals upon which he places so much reliance? Is he aware that four years after the passage of the Equal Pay Act women are still getting, on average, less than 55 per cent. or 60 per cent. of male wages? Is it not time, bearing in mind that employers will have to do something about this matter next year, that the Government pulled up their socks?

Mr. Fraser: I must reject any suggestion that the Government have been inactive in giving effect to the provisions of the Equal Pay Act. Women's take-home pay is likely to be less than that of men's because they work less overtime—

Mr. Huckfield: Chauvinist.

Mr. Fraser: I accept that some women will not present their own cases to tribunals. That is why we are giving the Equal Opportunities Commission the power to present claims on behalf of women. The more women who join trade unions, the more likely it is that their objectives will be achieved.

Social Contract

Mr. Atkinson: asked the Secretary of State for Employment if he remains satisfied with the operation of his policy on wage levels; and if he will make a statement.

Mr. Stanley: asked the Secretary of State for Employment whether he is satisfied with the working of the social contract.

Mr. Tebbit: asked the Secretary of State for Employment what progress he has made in ensuring the success of the social contract.

Mr. Arnold: asked the Secretary of State for Employment whether he is still satisfied with the working of the social contract.

Mr. Cyril Smith: asked the Secretary of State for Employment whether he is satisfied with the operation of the social contract.

The Secretary of State for Employment (Mr. Michael Foot): The social contract covers the whole range of Government economic policies, and the degree of progress in its fulfilment cannot be covered in the answer to one Question. If Questions are referring more specifically to the TUC guidelines about wage negotiations involved in the social contract, my reply is that it has had a considerable measure of success and continues to provide the best basis for the conduct of Government policy.

Mr. Atkinson: Will my right hon. Friend stiffen his resistance to the goo-like

blandishments coming from the Opposition Front Bench and from my right hon. Friend's colleagues in the Treasury, to the effect that Britain could solve its economic problems by this Government sacrificing the living standards of the workers they represent? Will my right hon. Friend circulate his Cabinet colleagues setting out the terms of the social contract, which are, as the TUC believes, that there should be one wage increase per year based on take-home pay and not gross pay, and equated with the rise in the retail price index, and that this in itself will ensure that the living standards of workers represented by trade unions will be maintained? Many people feel that in this way my right hon. Friend could now make a contribution towards a wider understanding of current wage agreements.

Mr. Foot: I hope that I shall resist such blandishments from any quarter, including that of the right hon. Member for Lowestoft (Mr. Prior) and his friends. We have had constant discussions with the TUC, including the discussions this week. I believe that there is a full understanding between the TUC General Council representatives and the Government about what we mean by the guidelines, and that there is agreement that one of the ways in which we can assist in dealing with the country's economic problems is to secure the best possible allegiance to those guidelines.

Mr. Stanley: Is it not clear that the huge pay settlements supposedly within the social contract represent the biggest single threat to full employment at present? Will the right hon. Gentleman take immediate measures drastically to revise the guidelines within the social contract so as to secure a major reduction in the average level of wage settlements?

Mr. Foot: I do not think that what the hon. Gentleman suggests is the right way to go about it. Any attempt to rewrite the guidelines along the lines he suggested would only cause confusion and injustice. It certainly would not contribute to the end we have in mind of a successful fight against inflation. I believe that the best way is by securing a strict allegiance to the guidelines as they stand. I also believe that that is the desire of the trade unions, along with ourselves.

Mr. Tebbit: Will the right hon. Gentleman say—preferably in two words, if not in two sentences—whether the present rate of wage settlements, to which the Chancellor of the Exchequer has drawn attention, is a mark of the success or the failure of the social contract?

Mr. Foot: Some of the settlements are successes and some are failures. We have not sought to conceal that. I have had a correspondence on the subject with the right hon. Member for Lowestoft, who accused me of having in some mysterious way concealed these matters. I have not done so. I hope that our exchange of letters on the subject will be published in the Official Report. Then the hon. Gentleman may see even more clearly what view we take of these settlements.

Mr. Skinner: Does my right hon. Friend appreciate that he should not get involved in appearing to lay the blame for inflation upon workers and their attempts to improve or even maintain their standard of living, especially in the light of the recent announcement by the Government that they will agree to salary increases of up to £8,000 a year for those at the top of the armed forces and in the higher echelons of other institutions within our Establishment? Surely my right hon. Friend cannot reconcile that sort of increase with some of the paltry rises that my right hon. Friend, in particular, constantly talks about—and seemingly talked about again last night.

Mr. Foot: The Boyle Report—if that is the document to which my hon. Friend is referring; I expect it is—certainly presented the Government with great difficulties, because it did not take account of the TUC guidelines and, in a sense, was produced without relevance to them. The Government did not accept the report in anything like its full degree. For any further comment on that matter, however, I refer my hon. Friend to the statement made by my right hon. Friend the Prime Minister on the subject.
I hope that my hon. Friend will not wish to abandon the guidelines, because we believe—there is no difference between me and my right hon. Friend the Chancellor on this subject—that the maintenance of the guidelines is important not only from the point of view of ensuring that we assist lower-paid workers, which

is part of the guidelines, but in order to prevent what would be the greater danger of unemployment if they were not adhered to.

Mr. Arnold: Will the right hon. Gentleman explain how his oft-repeated plea for free collective bargaining can be reconciled with policies aimed at achieving full employment?

Mr. Foot: Yes, Sir, but that is a much bigger subject than anyone would seek to deal with in a short answer. We are trying to work the matter out in this way because the attempt to combine statutory policies with any policy of maintaining full employment collapsed completely. We are not going back to the statutory method of trying to control these matters.

Dr. Bray: Will my right hon. Friend draw the attention of the Press to more meaningful figures than those given such publicity in the newspapers this morning? In particular, will he draw attention to the real income after tax, which is the figure with which hon. Members on the Government benches are concerned?

Mr. Foot: The worst example of misleading figures in the newspapers this morning was the headline in The Times saying,
Earnings may be rising by 37 per cent. a year, figures show".
To express the recent monthly rates of increase in wage rates or earnings in annual terms is misleading nonsense—[Interruption.] That is what the Leader of the Opposition did in the election, with his figure of 40 per cent. That figure was based on statistical bosh, and the figure in The Times is also based on statistical bosh. The newspapers should be more careful in printing these figures.

Mr. Smith: If the social contract is concerned with lower-paid workers, why did the Government reject the idea of a statutory minimum wage within the social contract? Is 28·5 per cent. taken as being within the social contract, in terms of average wage increases?

Mr. Foot: I shall take the hon. Gentleman's last point first. It is a very important matter, and nobody minimises its significance. About two-fifths of the 28·5 per cent. annual increase quoted in the reports today and in the figures published by my Department is the result of


threshold agreements reached in accordance with the stage 3 code. A further 0·5 per cent. stems from the London allowance, in accordance with the recommendations of the Pay Board. In addition, nearly 2 per cent. is attributable to special cases for coal miners, railwaymen and postmen, leaving roughly 14½ per cent.—about the same as the figures we were getting under the basic stage 3 rules—[Interruption.] These are the facts of the matter. My figures happen to be correct—very different from those used in The Times.
The question whether assistance for the low-paid could be achieved by a statutory minimum has often been debated. There are grave difficulties. The TUC agreed at its last congress to set a £30 target for the low-paid. The Government have done their best to go along with that aim and I believe that under those arrangements the low-paid have had better assistance under the present Government than they have had for many years.

Mr. Prior: In his last answer the right hon. Gentleman has shown that he either does not understand what is happening or is deliberately trying to mislead the House on the information available. Does he not know perfectly well that the 28·5 per cent. includes the threshold payments, which should have been taken into account in the assessment of new wage increases? Were the figures given by the Chancellor of the Exchequer on Panorama last night—when he said that one out of four settlements fell outside the social contract—based on information available to the right hon. Gentleman's Department, or was what the Chancellor said just speculation? If it was based on figures available to the Department, why cannot the House have the same information?

Mr. Foot: If the right hon Gentleman had done me the courtesy of listening to the past two speeches that I have made in the House he would have learnt that I referred to 75 per cent. of settlements having been within the social contract. That is exactly the same figure as was referred to by my right hon. Friend the Chancellor. Perhaps I should translate these percentages into other kinds of figures for the benefit of the right hon. Gentleman. What the Chancellor said in

that respect accords exactly with what I said on previous occasions. If the right hon. Gentleman is asking whether and how we should give futher figures on these matters, I must point out that many of the figures are given, with some of the details, in the Department of Employment's statement which was published yesterday. Everyone who knows anything about the figures knows that. If the right hon. Gentleman will study the reply that I sent to his letter, on the question why we think it would be wrong for the Government to adjudicate on every settlement, we may be able to have a proper discussion of the subject. I repudiate entirely the argument that the Government are withholding any figures from the House. We publish the figures on the same basis as did the previous Conservative Government.

Race Relations

Mr. Clemitson: asked the Secretary of State for Employment if he will initiate an equal opportunity in employment programme in order to improve race relations in the field of employment.

Mr. John Fraser: As I stated in reply to a Question on 3rd December, we are planning to extend the Department's work in promoting equal opportunity between workers of different races. I hope to hold discussions in the near future with the various agencies concerned with this field to consider how the work can best be developed: [Vol. 882, c. 398.]

Mr. Clemitson: I am grateful to my hon. Friend for that reply. Does he agree that the problem is widespread, that it represents a great loss of talent and skill to the community at large and that it causes a great deal of frustration to those on the receiving end of discrimination? Does he accept that such frustration can easily lead to anti-social and even criminal behaviour?

Mr. Fraser: I agree with my hon. Friend. It would be wrong not to use the full range of talents of people who have settled in this country and who are of a different colour from that of the white indigenous population. Having good race relations is of benefit not only to the minority but to the white community.

Mr. Hayhoe: Does the Minister agree that the problem is exacerbated at a time


when unemployment is increasing? Will he give an indication of any special action being taken by his Department to deal with the problem in the present circumstances?

Mr. Fraser: There is no evidence before me—the figures are not available at present—of special problems arising out of unemployment. We are trying to develop language programmes. A Question has been tabled on that subject. If people have a skill and a command of the English language their chances of re-employment are much greater than if they suffer the disadvantage of not speaking English.

National Union of Mineworkers

Mr. Peter Morrison: asked the Secretary of State for Employment whether he will arrange to meet the Executive of the National Union of Mineworkers to discuss industrial relations.

Mr. Norman Lamont: asked the Secretary of State for Employment what meetings he has had with the executive of the National Union of Mineworkers or the National Coal Board on industrial relations; and whether he will make a statement.

The Minister of State, Department of Employment (Mr. Albert Booth): My right hon. Friend has had no such meetings, nor has he any plans for them.

Mr. Morrison: Will the Minister tell the House what his right hon. Friend's attitude would be and what action he might take were the NUM to press for wage increases which, by common consent, were totally outside the terms of the social contract and which, because of that, the NCB refused, with the result that industrial action was threatened?

Mr. Booth: I can think of few areas in which it is less appropriate to answer hypothetical questions than in industrial relations. If any difficulty were to arise in negotiations, including that to which the hon. Gentleman has referred, I would indicate that the Advisory Conciliation and Arbitration Service is available to employers, managements and union negotiators.

Christmas Holiday

Mr. Gwilym Roberts: asked the Secretary of State for Employment what study

he has made of the number of firms which in 1974 had an eight-day holiday from Christmas to the New Year; and if, as a boost to the social contract, he will initiate discussions with the Trades Union Congress and the Confederation of British Industry on the possibilities of having an eight-day national holiday week covering Christmas to New Year's Day.

Mr. Booth: I do not think it would be timely, in present circumstances, to pursue this proposal for an extended national holiday at Christmas and the New Year.
No special study is in hand of the practices of firms during the Christmas and New Year period in 1974.

Mr. Roberts: Does my hon. Friend accept that working people generally have been adversely affected by rising prices, and that it would be extremely helpful if some indication were given that there was a positive side to the concept of the social contract? We all accept that holidays are basically a matter for local negotiation, but does my hon. Friend agree that an initiative of this sort taken by my right hon. Friend the Secretary of State might be welcomed by the CBI—bearing in mind the disruption which takes place in the week in question—and by the TUC? Further, does he agree that the additional days which might be involved would be more than offset by the boost in productivity which would be generated?

Mr. Booth: I would hope that any negotiations which led to increased holidays would produce the desirable result to which my hon. Friend has referred. The wage guidelines that the TUC has issued in connection with the social contract do not make specific mention of public holidays. However, negotiators are recommended to make progress towards an annual holiday entitlement of four weeks.

Mr. Donald Stewart: Will the Minister take into account the fact that this country has fewer public holidays than most other European countries? Secondly, does he agree that what is happening is that an eight-day holiday from Christmas to the New Year is in existence? Will he give that his official backing?

Mr. Booth: It is correct that there are other countries in Europe which have


longer holidays than we have. I understand that our position is similar to that of the Netherlands. Some other members of the Community have more public holidays. Practice varies widely among member countries. I know of no suggestion that there should be a common approach between all countries on this matter.

Mr. Cormack: Would it be a better boost to the social contract if a clause were inserted into that slightly doubtful document to the effect that for a complete year's work people could have a bonus of a few extra days off?

Mr. Booth: As the overwhelming majority of people working in British industry and services put in a complete year's work I think that the hon. Gentleman's suggestion would result in a general bonus.

Trade Union Membership

Mr. Brittan: asked the Secretary of State for Employment whether the TUC has informed him of the date on which the TUC review body on exclusions and exemptions from union membership will come into operation.

Mr. Booth: No, but the TUC has said that it intends the independent review committee to be in operation early this year, and I understand it has been giving the matter consideration with a view to achieving this.

Mr. Brittan: Does the Minister realise that many ordinary people still think it grossly unfair that the only redress against exclusion or expulsion from a trade union is an appeal to a body appointed by the TUC? Will he try to persuade the TUC to agree that there should be an appeal from this home-grown tribunal to the ordinary courts of the land? Further, will he try to get the TUC to agree that the procedure of the tribunal should be subject to the supervision and approval of the Council on Tribunals?

Mr. Booth: The appointment of the members of the tribunal will be made in consultation with the Chairman of the Advisory Conciliation and Arbitration Service and my right hon. Friend. The legislation which we are introducing and the steps that the TUC is taking to set

up the tribunal in no way infringe the common law rights of people affected by exclusion or expulsion in the closed shop situation. I take the view that the majority of people will not consider this matter anything but a most reasonable and practical step in dealing with what is admitted to be an important but a small minority problem.

Advisory Conciliation and Arbitration Service

Mr. Hurd: asked the Secretary of State for Employment whether he remains satisfied with the work of the Conciliation and Arbitration Service.

Mr. Foot: Yes, Sir. The Advisory Conciliation and Arbitration Service continues to receive an increasing number of requests for advice on a range of industrial relations matters and for assistance in settling disputes. We have received tributes from all quarters—employers and trade unions—on the splendid way in which it has started its work.

Mr. Hurd: In view of the Secretary of State's desire to give the House the fullest possible information on these matters, will he say how many settlements assisted by the ACAS have been in breach of the social contract? If he is serious in maintaining—he has done so constantly this afternoon—that strict allegiance to the guidelines is his main purpose, should he not instruct the ACAS to withdraw publicly from any negotiations at the point where the parties begin to discuss proposals which are in clear breach of the guidelines?

Mr. Foot: The hon. Gentleman misunderstands what we believe to be the purpose and possibility of success of the Advisory Conciliation and Arbitration Service. The chairman of the service, Mr. Mortimer, has publicly said that in present circumstances the service must have regard to the broad conceptions of the social contract and that it is right, when called in to assist, for it to inquire whether the parties to the dispute have taken account of the social contract. However, the responsibility for settlements rests with employers and unions. The service is absolutely independent of the Government. It is entitled to make up its mind on the basis of the facts put to it. If we interfered with that independence in


the way the hon. Gentleman has suggested we would destroy the effectiveness of this body as a conciliative and arbitrating body. We have no intention of doing so. I believe that many disputes have already been settled because of the intervention of the service. Many more will be avoided because of the service, and I advise the hon. Gentleman, if I may be presumptuous enough to do so, to assist us in making the service work instead of attempting, by this kind of question, to undermine its independence.

Mr. Molloy: Is my right hon. Friend aware that even before negotiations reach the stage where the service he has mentioned is called in, the whole atmosphere at shop-floor level is shrouded by the evil penumbra of the legislation introduced by the Conservative Party? Does he realise that this makes it terribly difficult for unions and management, which have not been at all assisted by the absurdities of the Industrial Relations Act which has done so much damage? May I say—

Mr. Speaker: The hon. Member may not "say" things. He may ask questions.

Mr. Foot: In response to my hon. Friend's question, I assure him that we are seeking to do our best to get rid of all the evil penumbra of the 1971 Act. We have not long to wait before that is achieved. Even before the abolition of that Act we have got this service into operation. It is not yet operating on a statutory basis. This will come in our later legislation. We believe that the service is in working order, and the House ought to pay tribute to the way in which Mr. Mortimer and his colleagues are doing the job.

Shipyards

Mr. Trotter: asked the Secretary of State for Employment whether he is yet in a position to estimate the effect on employment in civil shipyards of the cuts in the Royal Navy and the decision to concentrate naval work in the Royal Navy shipyards.

Mr. Booth: Until final decisions are taken on the proposals contained in the statement of my right hon. Friend the Secretary of State for Defence, following consultation with our allies and interested parties including shipbuilders, we cannot

estimate the effects that changes in the defence programme will have on shipbuilders.

Mr. Trotter: Is the right hon. Gentleman aware that the defence review provides for substantial reductions in the number of warships in the Navy and for no less than a one-third cut in the number of Royal fleet auxiliaries? Does he not accept that this must affect employment, particularly in yards which are situated in areas of present high unemployment? Will he press the Government to withdraw restrictions on the sale of warships to countries like Greece and Portugal?

Mr. Booth: The last part of that question is a matter for my right hon. Friend the Secretary of State for Defence rather than for my own Department. There will be an effective transfer of ship refitting from commercial yards. The only significant effect will be on those yards which undertook the refit of Royal fleet auxiliaries, including the yard in the hon. Gentleman's constituency. The absorption of this work into the Royal dockyards will take place only as capacity becomes available.

Mr. Mike Thomas: Since my hon. Friend has recently talked to Swan Hunter, the shipbuilding firm which has yards in my constituency and that of my hon. Friend the Member for Wallsend (Mr. Garrett), will he say whether it was the view of Swan Hunter that this would be likely to increase unemployment on a dramatic scale? Was that firm worried about employment prospects? I am told that it is not so worried.

Mr. Booth: My recent talks were with the shop stewards and management of Swan Hunter, in the ship repair division. They did not indicate any general concern about this effect. They were satisfied that they could operate efficiently and highly competitively. I hope that they will co-operate in this exercise in the belief that the Government are committed to maintaining the highest possible level of employment and that we are conscious that a great deal of shipbuilding and ship repair work takes place in the development areas.

Textile Industry

Mr. James Lamond: asked the Secretary of State for Employment if he


has had any recent talks with employers or trade unionists from the textile industry.

Mr. John Fraser: My right hon. Friend met Mr. Fred Dyson, Secretary of the National Association of Unions in the Textile Trade, on 14th November and discussed some of the problems facing the industry.

Mr. Lamond: Is my hon. Friend aware that the textile industry is facing its worst crisis for 30 years, that over 50,000 people have been on short-time working of one form or another since Christmas, that more than five mills have been closed in the past two months and that many of the difficulties the industry is facing are caused by our membership of the Common Market? Will my hon. Friend discuss with his colleagues the possibility of obtaining some concessions—if we are not to leave the Common Market—so that the textile industry in this country is not killed off?

Mr. Fraser: I appreciate the concern inside the textile industry. The figures I have, for November, show that 18,200 operatives in textiles were on short time. This is about 4·2 per cent of all the operatives in the industry. The import matters raised by my hon. Friend are the concern of the Department of Industry. I am sure that Ministers in that Department will study my hon. Friend's remarks.

Mr. Tom King: Is the hon. Gentleman aware that what is happening in the textile industry is also happening in the shoe industry? Is he aware that both industries are seriously threatened by imports, not from the Community but from very much outside that, from COMECON countries and also from the Indian subcontinent? He said that these are matters for the Secretary of State for Industry, but I felt that the tone of his reply implied that his Department was not particularly interested in the problem. I hope that that is not correct. Will he confirm that the Department is taking an acute interest in something which involves substantial unemployment in many constituencies?

Mr. Fraser: I give the hon. Member the fullest assurance that there is close co-operation between my Department and

the Department of Industry. We are concerned whenever there is short-time working.

Mr. Noble: Does my hon. Friend accept that the figures he has given are a little outdated, since the situation in textiles changes from day to day? Will he impress upon his colleagues that we hope that in future they will be meeting more than one trade union official in the textile industry? Is he aware that the workers in the industry are becoming increasingly militant about the situation and that Members of Parliament representing textile interests are also becoming increasingly bloody-minded?

Mr. Fraser: I ought to remind my hon. Friend that, apart from my right hon. Friend having a meeting with Mr. Fred Dyson, there have been meetings between the Under-Secretary of State for Industry and the National Joint Industrial Council for Hosiery and Knitwear, and a further meeting between the Secretary of State for Industry and the textile group of Members of Parliament. There is concern about this industry and wherever there is short-time working.

Mr. Hayhoe: Is the Minister aware that there is considerable concern in the textile industry about the proposals contained in the consultative document relating to the Employment Protection Bill? We welcome the fact that consultations have been held with the unions, but may we have an assurance that careful consideration will be given to representations being made from the other side of this important industry?

Mr. Fraser: I cannot give the hon. Gentleman a lot of help, but of course my right hon. Friend takes very seriously all representations made to him. I understand the point that is made.

Unemployed Persons

Mr. Carter: asked the Secretary of State for Employment what is the latest unemployment figure for Birmingham.

Mr. John Fraser: On 9th September 1974, 20,135 people were unemployed in the Birmingham travel-to-work area. I regret that later figures are not available because of industrial action.
My right hon. Friend said last week that he hoped shortly to give the House


some estimate of the figures for January. Present indications are that he will be able to give national and regional estimates later this week.

Mr. Carter: Is the Minister aware that the employment situation in Birmingham is giving rise to serious concern and that the current problems within the car industry—in particular, those of British Leyland—are adding to the fears? Will he ensure, in the investigations into the future of British Leyland, that employment and its prospects remain a top priority? He must be aware that if British Leyland catches a cold Birmingham and the West Midlands might catch pneumonia?

Mr. Fraser: I am sure that that point is fully taken by my right hon. Friends. It will be helpful to my hon. Friend to know that British Leyland has so far no plans for short-time working and has recently received new export orders worth £10 million for commercial vehicles. I hope that that healthy atmosphere will continue.

Mr. Eyre: Is the Minister aware that the people in Birmingham will regard it as very strange and highly suspicious that no reasonably accurate estimate of the numbers of people unemployed has been brought forward today? What rise has there been in the number of unemployed building industry workers in Birmingham? Is it not tragic that men in this category should be out of work when there is such a need for housing in the city?

Mr. Fraser: I am sorry, but I cannot give the hon. Gentleman the figures. My right hon. Friend has made clear that he will make them available to the House as soon as possible. I congratulate the hon. Gentleman on taking such an interest in the housing programme now that he is on the back benches.

Mr. Golding: Is the Minister aware that trade union officials in the West Midlands are saying that the unemployment figures are rising rapidly and that they are concerned about them? Will my hon. Friend make representations to the Department of Industry that IDC policy should be less stringently applied to the West Midlands?

Mr. Fraser: Of course, the unemployment situation is taken into account when

IDCs are granted. If I recall rightly, the Department of Industry recently granted an IDC for an extension to the British Leyland works in the Midlands.

Mr. Prior: Is the Minister aware that the lack of success of the social contract is resulting in unemployment reaching higher levels than would otherwise be necessary? Will he impress on his right hon. Friend that the social contract involves the maintenance of a high level of employment and should not be just an excuse for causing unemployment, as is happening at present? Will the hon. Gentleman also ask his right hon. Friend to look at a reply which I gave in the summer in answer to a supplementary question, to the effect that the Opposition would co-operate in a review of the unemployment statistics so that the whole House and the country could be better aware of the true unemployment figures, and so that we might get a better balance into our economic judgment?

Mr. Fraser: The latter part of the supplementary question hardly arises out of the original Question, and it is not a matter to be pursued here. In reply to the first part of the supplementary question, of course, one purpose of the social contract is to maintain the Government's objective in economic policy, which is a high level of employment. The observance of the social contract and a high level of employment go together.

Immigrants (Language Training)

Mr. Hoyle: asked the Secretary of State for Employment what steps he is taking to encourage language training for immigrants at their places of employment.

Mr. John Fraser: The Government have launched a scheme to encourage local education authorities to establish language training units at the place of work. Proposals have now been submitted by authorities covering the main areas of need, and schemes for 18 authorities have already been approved. A national centre financed by the training services agency has been established to support the units and will become fully operational early this year. I am in correspondence with the Chairman of the Manpower Services Commission about the general development of language


training in employment, and he has assured me that the training services agency will aim to ensure that where a need for language training exists it is properly met.

Mr. Hoyle: I thank my hon. Friend for that encouraging reply. I ask that the scheme should go ahead as quickly as possible because it will give all immigrants the opportunity to learn the language, it will help race relations and health and safety at work, and result in greater efficiency.

Mr. Fraser: I am grateful for my hon. Friend's support. Language training helps immigrants to develop their skill and potential, increases productivity and helps race relations.

Mrs. Chalker: Will the hon. Gentleman ensure that the opportunities afforded by the national training centre are equally available to women in employment as they are to men?

Mr. Fraser: Yes, we shall certainly make sure that training facilities are available irrespective of sex.

Mrs. Knight: Does the scheme extend to National Health Service hospitals? Does the Minister accept that a true understanding of the English language is immensely important in securing accuracy of diagnosis?

Mr. Fraser: The facilities which we are developing for language training will be available throughout the whole of industry if the services are called upon.

EEC HEADS OF GOVERNMENT

Mr. William Hamilton: asked the Prime Minister what further talks he intends to have with the Heads of State of EEC Governments before the decision is taken to make a recommendation to the British people on the United Kingdom's future in or out of the Common Market.

Mr. James Lamond: asked the Prime Miinster when he next plans to have an official meeting with EEC Heads of Government.

Mr. Tim Renton: asked the Prime Minister whether he plans to invite the Heads of EEC Governments to meet him in London.

Mr. Adley: asked the Prime Minister when he next intends to meet the other EEC Heads of Government.

The Prime Minister (Mr. Harold Wilson): I expect to meet other Heads of Government at the next meeting of the European Council, which, as I explained to my hon. Friend the Member for Nuneaton (Mr. Huckfield) on 17th December, is for the Irish Government to convene.

Mr. Hamilton: Does my right hon. Friend agree that it is important that he should explain to the other Heads of State that he speaks for the Government, in view of the conflicting statements which have been made by Cabinet Ministers on British membership of the Common Market? Will my right hon. Friend make clear that the almost neurotic speech made by the Secretary of State for Trade in Brighton on Friday and the apparently deliberate misuse of figures produced by his Department do not represent the official policy of the Government?

The Prime Minister: I do not accept my hon. Friend's strictures on these statistics, or the misuse of them, but I accept that our partners in Europe are well aware, in all negotiations, that my right hon. Friend the Foreign and Commonwealth Secretary—who is our representative on the Council of Ministers—and I speak for the Government, and I shall do so at the next meeting of the Heads of Government.

Mr. Renton: Does not the Secretary of State for Trade, as a member of the Cabinet, have a collective responsibility for the Government's attitude towards the renegotiation? As the Secretary of State has declared himself as having no confidence in our future within the EEC, should not the Prime Minister ask for his resignation?

The Prime Minister: No, Sir. I read the speech very carefully. It contains a number of statistics from which my right hon. Friend drew conclusions, as he had the right to do—[Interruption.]—as he had the right to do. My experience of Common Market debates both within parties and between them from 1961 onwards is that in statistical matters on the Common Market truth is many-sided—[Interruption.]

Mr. Speaker: Order. Last week complaints were made about the few Questions that the Prime Minister was able to answer. It would be much easier to get on if there were less noise.

The Prime Minister: We are concerned with renegotiating, in accordance with our manifesto, the terms entered into by hon. and right hon. Gentlemen opposite, and that we shall do.

Mr. Lamond: Will my right hon. Friend discuss with his colleagues our adverse trade balances with other countries in the Common Market, including £800 million with West Germany, £600 million with the Netherlands, £400 million with France and £200 million with Italy? Is my right hon. Friend satisfied that we have sufficient freedom within the Common Market to take the corrective action necessary to remedy these adverse balances?

The Prime Minister: I answered that question last week. Certainly we have taken up these questions. They are very serious. That is what my right hon. Friend was talking about at the weekend.

Mr. Adley: Is the Prime Minister aware that his hon. Friend the Member for Fife, Central (Mr. Hamilton) has a great deal more courage than the Prime Minister himself and that the Heads of Government in the EEC and millions of people in this country are crying out for leadership from him on this and on other issues? Is there any chance that, sooner or later, the Prime Minister will start to do what he believes to be right with the nation rather than what he hopes will be popular with his party?

The Prime Minister: On this question I shall, unlike my predecessor, fight for British interests in these negotiations.

Mrs. Winifred Ewing: Will the Prime Minister promise the Heads of State when he meets them that in initiating the results of the referendum he will establish a clear position on the question whether the people of Scotland have either supported it or, as is more likely, rejected it and the consequences thereof?

The Prime Minister: I cannot anticipate the votes of any part of the United Kingdom when the decision is taken. I

assure the hon. Lady that I intend to make a statement on Thursday on all relevant aspects of the test of British public opinion on this matter. The arrangements which we are proposing will be subject to the final authority of this House in the matter of legislation.

Mr. Fernyhough: Will my right hon. Friend make clear to the Heads of State when he meets them that he has no intention of attempting to gag or remove any Minister who is trying, in his own sincere way, to advocate party policy, and that if he attempted to do so it would invoke a great deal of anger?

The Prime Minister: I agree with my right hon. Friend. The difference between the Labour Government and their Conservative predecessors is that we are not a Cabinet of cronies.

Several Hon. Members: rose—

Mr. Speaker: Mr. Thorpe.

Mr. Heath: Is the right hon. Gentleman aware—

The Speaker: Order. I had already called the right hon. Member for Devon, North (Mr. Thorpe).

Mr. Thorpe: I have always backed the idea that on this issue there should be a free vote, unlike the right hon. Gentleman the Prime Minister, who is moving in that direction, which I welcome. Will he say whether, if it be a fact that the Government are negotiating in good faith with the hope that they may reach a solution which they will be able to recommend to the British people, they will find the speeches made by the right hon. Gentleman the Secretary of State for Trade and the Secretary of State for Industry—who are pathological, if not congenial, in their hatred of the Common Market—hopeful or helpful to the negotiations, or whether they are treated by our European colleagues as irrelevant?

The Prime Minister: I do not accept the strictures which have been made, as I made clear to my hon. Friend the Member for Fife, Central (Mr. Hamilton). The right hon. Member for Devon, North (Mr. Thorpe) talks of a free vote. I must tell him that the Labour Government will get, without support from his or any other Opposition Party, a free vote of the whole


British people. I should make an exception, because the hon. Member for Rochdale (Mr. Smith), when speaking in the election, said that he supported a referendum on this matter—[Interruption.] Yes, he said so at the time. But the right hon. Gentleman fought the two recent elections opposing the right of a free vote of the British people.

Mr. Heath: In the public debate for which the Prime Minister called yesterday—which has been going on for 15 years—will he recognise that the important element is the debate in this House and that this House should have the opportunity of coming to its own conclusion again—and should do so this time on a free vote of the whole House? Will he give an undertaking that as he has not the political courage to enforce collective responsibility in his Cabinet, at least he will have the political wisdom, this time, to give a free vote to everybody on his own side of the House?

The Prime Minister: I have already said that I shall be making a statement on this matter on Thursday. Traditionally, the question of a free vote is a matter of advice by the Chief Whips of any party. [Interruption.] I can remember this having been said many times by Mr. Macmillan when he was Leader of the Conservative Party. Since he is looked back on with great nostalgia, I thought I would remind the House of that fact. The right hon. Gentleman the Leader of the Opposition referred to the public debate for which I called yesterday. I think that he and I may be in agreement on that matter. I said that in regard to the test of public opinion later this year the rules must be made by this House and that we not only intend to have a debate on the result of the renegotiations for which the right hon. Gentleman asked today and last week but also, when we have put forward our proposals for a test of opinion, that it would probably be right, after consultation through the usual channels, to have a debate on the general rules for the test of public opinion by the free vote of the British people, which the right hon. Gentleman, when Prime Minister, refused to give them.

INFLATION (MINISTER'S SPEECH)

Mr. Hurd: asked the Prime Minister whether the public statement on inflation made in Washington, DC, on 10th December by the Secretary of State for Prices and Consumer Protection represented Government policy.

Mr. Lawson: asked the Prime Minister if the public statement on inflation by the Secretary of State for Prices and Consumer Protection in Washington, DC, on 10th December represents the policy of Her Majesty's Government.

The Prime Minister: I would refer the hon. Members to the reply which I gave to the hon. Member for Mid-Sussex (Mr. Renton) on 19th December.—[Official Report, 19th December 1974; Vol. 882, c. 528.]

Mr. Hurd: In her statement on 10th December the right hon. Lady forecast inflation at a rate of 17 per cent. We now have a rate of 19 per cent., and wage rates have risen by 28 per cent. What has happened to the Prime Minister's newfound determination in this matter? How could Ministers yesterday go to the TUC and tamely say that they are satisfied with guidelines which have produced this disastrous combination of figures, which, so far as I can see, are without parallel in the Western world?

The Prime Minister: The hon. Gentleman has read a particular report of my right hon. Friend's speech. I have read what she actually said, which does not bear out the hon. Gentleman's summary. With regard to the meeting with the TUC yesterday, we did not say that we were satisfied with the situation. We said exactly what I said in the House last week—namely, that we should like to see more compliance with the social contract. I remind the hon. Gentleman that the figures which have been published by the Government show that two-fifths of the increases in the past year have been due to the threshold payments under agreements reached in accordance with the Conservative Government's statutory policy, which on thresholds we supported. In addition, some of the special increases awarded since then were in respect of


people who had suffered serious anomalies under statutory controls, such as the miners, the railwaymen and the postmen—and London weighting had not been substantially reconsidered for some seven years.

Mr. Atkinson: Is my right hon. Friend aware that there is considerable confusion about the purpose of the social contract? Does he think it appropriate to spell out the purpose of the terms contained within it? Does he agree that if it is the purpose of the social contract to maintain workers' living standards—workers whom the Labour Party are here to represent—then what the social contract refers to is take-home pay and not gross wages? Does this not suggest that it is take-home pay that should equate with rises in the retail price index?

The Prime Minister: There is no ministerial responsibility for any confusion that there may be in my hon. Friend's mind. There is no confusion whatever, as was made clear yesterday by the leaders of the TUC with whom my colleagues and I discussed these questions.

Mr. Lawson: Will the Prime Minister not answer the question put to him by the hon. Member for Tottenham (Mr. Atkinson)? Will he not inform him that there is no possibility whatever that take-home pay can be maintained in the corning year?

The Prime Minister: No, Sir. The argument yesterday, the argument last week in the House, and the argument throughout, has been about the guidelines. We consider those guidelines to be right. We believe that they will make a marked impact on the rate of inflation that we inherited from the Conservative Government—[Interruption.] We believe that this will happen. We should like to see greater compliance with the social contract than the 75 per cent. figure we have seen so far. The House will have seen the report made by independent commentators—not members of the Labour Party—showing that in the latest period the rate of increase has been falling. The fact that the rate of increase has been higher in public industries than in private industries is due to the essential catching-up operation, which was inevitable after the statutory policy pursued by the Conservative Government.

Mr. Golding: Is my right hon. Friend aware that the social contract has had a far greater impact on local bargaining than could ever have been expected in the circumstances in which it was introduced after the Tory repressive legislation? Is he aware that local trade union officials throughout the country are doing their best to ensure that it will succeed?

The Prime Minister: Yes, Sir. My hon. Friend has had much more experience of these matters, in terms both of national and local bargaining within the trade union movement, than most of those who have been putting questions this afternoon. I entirely agree with him. He is, of course, concerned with one of the public industries that were gravely attacked by the previous Government, not only during the statutory period but during the period of the Leader of the Opposition's confrontation with the Post Office workers a little earlier.

Mr. Heath: Is the Prime Minister aware that there is no justification for the argument that he constantly puts forward that threshold agreements are the cause of the massive increases the figures for which were published yesterday? The guidelines of the TUC are that the threshold payments should be taken into account in settlements which are now being made. The plain fact is that the threshold agreements are not being taken into account—hence the very high figures that we saw yesterday. As, in the lifetime of the present administration, since March last year, the rate of price increases has doubled and the rate of wage earnings has more than doubled, and the Secretary of State for Prices and Consumer Protection says that in this year it will get worse, when will the Prime Minister have the political courage to take action, instead of merely talking?

The Prime Minister: In the first place, I do not accept the right hon. Gentleman's statement about thresholds. The latest increases—those which appeared in yesterday's figures—included a considerable number in which the threshold system was incorporated into the wage settlements. This was inevitable; the Leader of the Opposition must have had it in mind when he introduced thresholds. I do not accept that either prices or wages—this is what the right hon. Gentleman said—are double what they were a year ago. He is totally wrong about that.

INTERNATIONAL MONETARY FUND (MEETINGS)

The Chancellor of the Exchequer (Mr. Denis Healey): With permission, I should like to make a statement about the recent international monetary meetings.
In Washington last week I attended meetings of the Interim Committee of the International Monetary Fund and of the Group of Ten, and had some valuable private conversations with colleagues in the United States and with finance ministers of other countries attending the same meetings. In the two main meetings I acted, following the earlier EEC discussions under my chairmanship in London, as spokesman for the agreed views of EEC Governments. Communiqués were issued recording the outcome of the IMF Interim Committee meeting and the decisions taken in the Group of Ten on a separate subject. With permission, I will circulate the full texts of both in the Official Report.
The meetings were held in an atmosphere of widespread concern about the risks of serious recession during 1975—a concern which I have voiced for many months. But there was also a gratifying determination to accept the reality of these dangers, to urge and to take appropriate domestic and international measures to mitigate them, and to reach immediate decisions on the major proposals under consideration at our meetings. The economic measures announced by the United States during the week were welcomed in this context. Details of the decisions are set out clearly in the communiqué, but I should like to underline the main features.
First, there was unanimous agreement to extend and enlarge the IMF oil facility for 1975, to authorise new borrowing up to SDR 5 billion, and to keep the operation under constant review; it was also unanimously agreed that, while the facility will broadly operate at market-related interest rates, arrangements will be made for borrowers from among the most severely affected developing countries to pay much lower rates.
Second, the Group of Ten agreed that a solidarity fund should be established in the OECD as a safety net for its members in case other international measures proved inadequate. Each participant

would have a quota which would serve to determine both its obligations and its borrowing rights. Total quotas would be about $25 billion, available for two years. Some important features still have to be worked out, but the target is approval by OECD Ministers within a few weeks.
Third, there was agreement on the main features of the current review of IMF quotas. The total size, which indirectly determines the level of normal IMF resources, should be increased by 32·5 per cent., from SDR 29·2 billion to SDR 39 billion. Within this total increase, the combined share of OPEC countries should be doubled and the combined share of other developing countries should remain unchanged. This will, of course, involve some reduction in the relative share of the industrial countries. Country by country changes are to be worked out in the IMF within this framework.
Finally, agreement in principle was achieved—with some details settled—on a range of amendments to the IMF Articles. Many of the amendments, full details of which are to be worked out by the IMF Executive Board, will be designed to improve the usability of the SDR and IMF general resources in the context of present and prospective monetary conditions. But the most interesting features are the progress towards agreement to recognise the legality of the floating of currencies and towards new arrangements concerning gold, designed to abolish the official price for gold, eliminate obligatory payments of gold by members to the IMF, and allow freedom for central banks to enter into gold transactions under conditions which will ensure that the rôle of gold in the international monetary system will be gradually reduced.
Some strenuous bargaining was involved in the achievement of these results. That they were in the end achieved, and through concessions on particular points from every participant, underlines the determination of all to make progress without further delay.
I believe that the two major results of the meetings are the additional measures of recycling and financial support which have been agreed and the important


moves towards resolving long-standing arguments about gold, legality of floating, and so on, which will help us to rebuild a more effective International Monetary Fund.
Overall, with the oil facility, the OECD solidarity fund and the prospective increases in quotas, we now have a greatly improved battery of weapons to meet the financing difficulties which many countries are bound to face in the coming months. This means that those countries can face their difficulties with much greater assurance of support. The whole world in turn can be more confident of avoiding further reductions in trade and economic activity which might otherwise have been unavoidable.

Mr. Robert Carr: It is clearly of the greatest importance that there should be good international arrangements to deal with the petrodollar recycling problem and to reduce the risk of individual countries being driven to take "beggar my neighbour" policies and push the world into a general slump. Therefore, we welcome the real progress which was clearly made at Washington last week and we assure the right hon. Gentleman of our general support in these matters. Perhaps I could ask him a few questions.
First, the size of the IMF facility, I understand, is SDR5 billion or $6 billion but this compares with the $12 billion to $14 billion that the EEC agreed at its meeting the previous week was required. Has the right hon. Gentleman anything to say about the size and what the chances are of increasing it above 5 billion if necessary?
Second, would the right hon. Gentleman make a further statement in due course about the solidarity fund when the important features to which he refers have been worked out—hopefully, over the next few weeks? Third, in relation to the OPEC countries' quotas to the IMF and their projected increase—doubling, I think the right hon. Gentleman said—have those countries been consulted and have they agreed to that?
Finally, would the right hon. Gentleman agree that the unanimity with which the EEC approached the Washington conference helped in its success? Is it not a fact that our membership of the EEC strengthened our position in getting the benefits which he is claiming?

Mr. Healey: First, let me express my gratitude for the welcome that the right hon. Gentleman has given and for his assurance of support from the Opposition.
On the question of the size of the IMF facility, every country represented at these meetings except the United States would have preferred a much larger sum, but it was agreed that the needs of the situation would be kept under constant review and it is open to the Interim Committee to reconsider the matter later in the year if the requirement appears larger. Apart from the possibility of increasing the amount of borrowing from the OPEC countries, it may be possible to make use of the IMF's own resources, and the IMF has resolved to investigate that possibility. So I think that we have some assurance there.
On the question of the OECD solidarity fund, I shall certainly make a statement to the House as soon as an agreement is reached in detail on this matter. It may be desirable for the House to consider and to vote on the question before final decisions are taken. It will certainly be so desirable, I think, in the Congress of the United States. This is one reason why it may be many months before this OECD solidarity fund is possibly able to operate.
On the question of consultation with the OPEC countries, I had, as I think I told the House some weeks ago, the opportunity of discussing these ideas before they were agreed with the Government of Saudi Arabia when I was there in December, and I was assured of their general support. But the OPEC countries were directly represented at the Washington meeting and all voted for this proposal, although there will undoubtedly be a strenuous negotiation about the precise rate of interest which is offered to these countries in the light of the exceptional security which a borrowing by the IMF entails.
On the last question, regarding the Common Market, it was undoubtedly of immense value that the European countries were completely united on this matter from a week before the meeting took place. This illustrates for me the advantage of European countries concentrating on co-operation on issues where there is a clear common interest to be pursued rather than pursuing the theological intricacies of the Treaty of


Rome. In this particular respect I am reminded very much of the advantage I found as Secretary of State for Defence some years ago, when Britain's entry to the Common Market had been vetoed by the French Government, in setting up a Eurogroup inside NATO which was able to exercise a very powerful European influence.

Mr. Duffy: I congratulate my right hon. Friend the Chancellor on his leadership and success at the world-level negotiations last week. Does he not now think it urgent that this country's economic strength begins to correspond to the prestige and place that we still enjoy in world councils? Is he satisfied that the second IMF oil facility is adequate? If not, does he think that it can be topped up, and, if so, from where?

Mr. Healey: I am grateful to my hon. Friend for his earlier remarks. I think that the success of the negotiations last week showed that Britain could command immense influence in the world if, as I said earlier, she concentrates on trying to organise support from like-minded countries on issues on which a clear common interest is to be achieved.
With respect to my hon. Friend, I think that I very largely answered his second question when answering the right hon. Member for Carshalton (Mr. Carr). However, if I may repeat what I said, although I and all the other members of the IMF except the United States were disappointed at the final size agreed for the expanded IMF facility, we have agreed to keep this under review. The possibility of increasing borrowing from OPEC countries is there, and it may be possible to make use of the existing resources of the IMF.

Sir D. Walker-Smith: What inference is to be drawn from the fact that the only reference to interest rates was the exceptional treatment to be afforded to developing countries? Does the right hon. Gentleman have anything to report as to international discussion or corporate thinking in regard to interest rates as a factor in capital investment and thereby in combating recession?

Mr. Healey: The right hon. and learned Gentleman has very ingeniously sought to move the discussion rather some distance

from the matters on which I made the statement. But in answer to what he has said may I say, first, concerning the IMF facility, that the money will be borrowed from the OPEC countries at market-related rates taking account of the special security offered to lenders by the fact that the IMF is a guarantor of their loans. On the wider question which I thought the right hon. and learned Gentleman sought to introduce, it is the Government's aim to secure a fall in interest rates world-wide. No doubt he will have noticed that it has been possible in the last few days for the United Kingdom to reduce both minimum lending rate and base rate. I hope that he welcomes this.

Dr. Phipps: I congratulate my right hon. Friend the Chancellor on the very important progress that has been made, and I recognise the important rôle played by the IMF in these negotiations. Does not the Chancellor agree, however, that if we are to give the OPEC countries the real security they require in recycling their funds, some form of international bank and international currency is becoming essential? Does he regard his meetings as a first step to that end?

Mr. Healey: I certainly do not regard the agreements reached last week as in any sense solving the oil problem or even solving the problem of the gigantic petrodollar surplus. While I was in Washington I said that I hoped that, in addition to further moves in the direction we laid down last week, it may be possible for us shortly to discuss some means of setting up an international intermediary body which would make it possible for the OPEC countries to invest some of their money in increasing productive capacity in the consumer countries so that the transfer of resources which will take place when the OPEC countries are capable of absorbing imports to the value of the oil they now export may take place without any fall in the standard of living in the consumer countries.

Mr. Pardoe: Is the right hon. Gentleman aware that we welcome almost any international measures in this situation? However, is he also aware that his remarks about the reduction in the rôle of gold are likely to raise a hollow laugh throughout the world? Will he be a little more forthcoming about his promises of


action on the domestic front in his statement? Will he accept that our ability to borrow and, therefore, our chances of averting a sterling crisis have so far been entirely due to the promise of North Sea oil and that confidence in that is now ebbing? Is it not a fact that if we are to avoid a sterling crisis within the next four months, we must choose between a statutory incomes policy or massive and unacceptable unemployment?

Mr. Healey: The hon. Gentleman is an expert in hollow laughter, but I did not find this to be the reaction of my colleagues at the IMF. When the hon. Gentleman has had an opportunity to study what I have said more carefully, I think he will take a more balanced and less frivolous view. On the second part of his remarks, I do not find his crocodile tears any more helpful than his hollow laughter.

Mr. Crawford: In the context of the right hon. Gentleman's reference to IMF oil quotas for 1975, did he discuss IMF quotas for succeeding years? Did he take into account the fact that Scottish oil will be flowing in the succeeding years, and the fact that that oil will very shortly belong to Scotland?

Mr. Healey: On the question of the increases in quotas, we agreed that the increases will stand for some years. I am not in a position to tell the House at this moment the number of years after which we propose to consider a further change in the quota system. On the second part of the question, I assure the hon. Gentleman that we took into account all relevant considerations.

Mr. Michael Stewart: Does my right hon. Friend agree that this will not be the last international discussion on these matters and that good understanding between European countries will continue to be important? If this country were of its own choice, and not of someone else's choice, to vote to come out of the Community, does he think that this would make it easier for him to get on with his European colleagues or more difficult?

Mr. Healey: I am afraid that some hon. Members are consistently trying to draw me some distance away from the subject of my statement. I commented on the point that my right hon. Friend has made

that the type of co-operation we achieved on this matter a fortnight ago, which contributed so greatly to the success in Washington, was very analogous to that which we achieved in the Eurogroup of NATO in the later years of the 1960s when Britain was not a member of the Common Market and France, though not a member of the Eurogroup, was.

Mr. Tugendhat: Does the Chancellor not agree that, after this impressive start on recycling, it is now essential for the consumer countries to reach agreement with the OPEC countries on the terms of reference by which the price of oil itself will be governed? Will he tell the House something about his ideas on the appropriate forum for this kind of discussion? There have been differences of opinion between France and the Americans. Will he expand a little on his ideas on the kind of framework—the rules and restraints—governing the encouragement of direct investment by OPEC countries in the West?

Mr. Healey: I know that the hon. Member is a close student of these methods. However, some of the questions raised by him would require a lengthy speech rather than a rapid comment.
I have always believed that the right point of entry to a dialogue with the oil producers on the whole range of problems raised by the recent increase in prices is an issue on which a common interest can be recognised from the start. We have that in the IMF facility. I believe that the discussions we have had with the producers on finding a stable and reliable location for part of their funds may open the way to wider discussions.
The President of France and the President of the United States reached an agreement at Martinique to begin discussions with the oil producers in which the less-developed countries would also take part. It is envisaged that the initial discussions on this matter probably at official level, will take place in the spring. The Americans attach great importance to the fact that we have reached agreement on a solidarity fund inside the OECD and that ministerial agreement on the details will be completed before the negotiations with the oil producers take place.
Beyond that I think I should be trespassing on the patience of the House if I attempted to describe my ideas in more detail.

Mr. Tam Dalyell: Is there any quid pro quo for the apparent French aquiescence of the Minister's action with regard to the financial rôle of gold?

Mr. Healey: The most difficult issue within the fund is the difference of view between France and all the other member countries on the rôle of gold. Great progress was made in the meeting in Washington last week in narowing the area of difference on this matter. We hope that we shall finally close the gap in the coming months so that it will be possible to present Parliaments all over the world with an agreed package of amendments to the articles of the IMF which can be put to the various Parliaments at the same time.

Mr. Ridley: Put into simple English, does not the Chancellor's statement mean that he has succeeded in borrowing a great deal more money to finance a higher rate of inflation for the future? Is he sure that that is wise and prudent?

Mr. Healey: Put into simple English, the answer is "No, Sir". The world recognises that for several years, perhaps for many years, it will not be possible for the oil producers to absorb imports of goods and services to the present value of the oil they export. Unless there is a collapse of the international monetary system, or unless the consuming countries are compelled to reduce the level of their industrial activity to a point which would require widespread unemployment, some means of recycling those funds must be found. I am glad to tell the hon. Member, in the simplest English, that the agreements we made last week remove one of the major factors which could otherwise have produced a gigantic international crisis on the scale of the 1930s.

Following are the communiqués:

Press Communiqué of the Interim Committee of the Board of Governors on the International Monetary System

1. The Interim Committee of the International Monetary Fund held its second meeting in Washington, D.C. on January 15 and 16, 1975. Mr. John N. Turner, Minister of Finance of Canada, was in the chair. Mr. H. Johannes Witteveen, Managing Director of the International Monetary Fund, participated in the

meeting. The following observers attended during the Committee's discussions of the matters referred to in paragraphs 2, 3, and 4 below: Mr. Henry Konan Bedié, Chairman, Bank-Fund Development Committee; Mr. Gamani Corea, Secretary General, UNCTAD; Mr. Wilhelm Haferkamp, Vice President, EC Commission; Mr. Mahjoob A. Hassanain, Chief, Economics Department, OPEC; Mr. René Larre, General Manager, BIS; Mr. Emile van Lennep, Secretary General, OECD; Mr. Olivier Long, Director General, GATT; Mr. Robert S. McNamara, President, IBRD.

2. The Committee discussed the world economic outlook and against this background the international adjustment process. Great concern was expressed about the depth and duration of the present recessionary conditions. It was urged that anti-recessionary policies should be pursued while continuing to combat inflation, particularly by countries in a relatively strong balance of payments position. It was observed that very large disequilibria persist not only between major oil exporting countries as a group and all other countries, but also among countries in the latter group, particularly between industrial and primary producing countries. Anxiety was also voiced that adequate financing might not become available to cover the very large aggregate current account deficits, of the order of US$30 billion, in prospect for the developing countries other than major oil exporters in 1975.

3. The Committee agreed that the Oil Facility should be continued for 1975 on an enlarged basis. They urged the Managing Director to undertake as soon as possible discussions with major oil exporting members of the Fund, and with other members in strong reserve and payments positions, on loans by them for the purpose of financing the Facility. The Committee agreed on a figure of SDR 5 billion as the total of loans to be sought for this purpose. It was also agreed that any unused portion of the loans negotiated in 1974 should be available in 1975. The Committee agreed that in view of the uncertainties inherent in present world economic conditions, it was necessary to keep the operation of the Oil Facility under constant review so as to be able to take whatever further action might be necessary in the best interests of the international community. It was also understood that during the coming months it would be useful to review the policies, practices, and resources of the Fund since it would he appropriate to make increased use of the Fund's ordinary holdings of currency to meet the needs of members that were encountering difficulties.

4. The Committee emphasised the need for decisive action to help the most seriously affected developing countries. In connection with the Oil Facility, the Committee fully endorsed the recommendation of the Managing Director that a special account should be established with appropriate contributions by oil exporting and industrial countries, and possibly by other members capable of contributing, and that the Fund should administer this account in order to reduce for the most seriously affected members the burden of interest payable by them under the Oil Facility.

5. The Committee considered questions relating to the sixth general review of the quotas of members, which is now under way, and agreed, subject to the satisfactory amendment of the Articles, that the total of present quotas should be increased by 32·5 per cent. and rounded up to SDR 39 billion. It was understood that the period for the next general review of quotas would be reduced from five years to three years. The Committee also agreed that the quotas of the major oil exporters should be substantially increased by doubling their share as a group in the enlarged Fund, and that the collective share of all other developing countries should not be allowed to fall below its present level. There was a consensus that because an important purpose of increases in quotas was strengthening the Fund's liquidity, arrangements should be made under which all the Fund's holdings of currency would be usable in accordance with its policies. The Committee invited the Executive Directors to examine quotas on the basis of the foregoing understandings, and to make specific recommendations as promptly as possible on increases in the quotas of individual member countries.

6. I. The Committee considered the question of amendment of the Articles of Agreement of the Fund. It was agreed that the Executive Directors should be asked to continue their work on this subject and, as soon as possible, submit for consideration by the Committee draft amendments on the following subjects:

(a) The transformation of the Interim Committee into a permanent Council at an appropriate time, in which each member would be able to cast the votes of the countries in his constituency separately. The Council would have decision-making authority under powers delegated to it by the Board of Governors.
(b) Improvements in the General Account, which would include (i) elimination of the obligation of member countries to use gold to make such payments to the Fund as quota subscriptions and repurchases and the determination of the media of payment, which the Executive Directors would study, and (ii) arrangements to ensure that the Fund's holdings of all currencies would be usable in its operations under satisfactory safeguards for all members.
(c) Improvements in the characteristics of the SDR designed to promote the objective of making it the principal reserve asset of the international monetary system.
(d) Provision for stable but adjustable par values and the floating of currencies in particular situations, subject to appropriate rules and surveillance of the Fund, in accordance with the Outline of Reform.

II. The Committee also discussed a possible amendment that would establish a link between allocations of SDRs and development finance, but there continues to be a diversity of views on this matter. It was agreed to keep the matter under active study, but at the same time to consider other ways for increasing the transfer of real resources to developing countries.

7. The Committee also agreed that the Executive Directors should be asked to consider possible improvements in the Fund's facilities on the compensatory financing of export fluctuations and the stabilisation of prices of primary products and to study the possibility of an amendment of the Articles of Agreement that would permit the Fund to provide assistance directly to international buffer stocks of primary products.

8. There was an intensive discussion of future arrangements for gold. The Committee reaffirmed that steps should be taken as soon as possible to give the special drawing right the central place in the international monetary system. It was generally agreed that the official price for gold should be abolished and obligatory payments of gold by member countries to the Fund should be eliminated. Much progress was made in moving toward a complete set of agreed amendments on gold, including the abolition of the official price and freedom for national monetary authorities to enter into gold transactions under certain specific arrangements, outside the Articles of the Fund, entered into between national monetary authorities in order to ensure that the rôle of gold in the international monetary system would be gradually reduced. It is expected that after further study by the Executive Directors, in which the interests of all member countries would be taken into account, full agreement can be reached in the near future so that it would be possible to combine these amendments with the package of amendments as described in paragraphs 6 and 7 above.

9. The Committee agreed to meet again in the early part of June 1975 in Paris, France.

COMMUNIQUE OF THE MINISTERIAL MEETINGS OF THE GROUP OF TEN in Washington on 14th and 16th January 1975.

1. The Ministers and Central Bank Governors of the ten countries participating in the General Arrangements to Borrow met in Washington on the 14th and 16th of January 1975, under the Chairmanship of Mr. Masayoshi Ohira, Minister of Finance of Japan.

The Managing Director of the International Monetary Fund, Mr. H. J. Witteveen, took part in the meetings, which were also attended by the President of the Swiss National Bank, Mr. F. Leutwiler, the Secretary-General of the OECD, Mr. E. van Lennep, the General Manager of the Bank for International Settlements, Mr. R. Larre, and the Vice-President of the Commission of the EEC, Mr. W. Haferkamp.

2. After hearing a report from the Chairman of their Deputies, Mr. Rinaldo Ossola, the Ministers and Governors agreed that a solidarity fund, a new financial support arrangement, open to all members of the OECD, should be established at the earliest possible date, to be available for a period of two years. Each participant will have a quota which will serve to determine its obligations and borrowing rights and its relative weight for voting purposes. The distribution of quotas will be based mainly on GNP and


foreign trade. The total of all participants quotas will be approximately $25 billion.

3. The aim of this arrangement is to support the determination of participating countries to pursue appropriate domestic and international economic policies, including co-operative policies to encourage the increased production and conservation of energy. It was agreed that this arrangement will be a safety net, to be used as a last resort. Participants requesting loans under the new arrangement will be required to show that they are encountering serious balance-of-payments difficulties and are making the fullest appropriate use of their own reserves and of resources available to them through other channels. All loans made through this arrangement will be subject to appropriate economic policy conditions. It was also agreed that all participants will jointly share the default risks on loans under the arrangements in proportion to, and up to the limits of, their quotas.

4. In response to a request by a participant for a loan, the other participants will take a decision, by a two-thirds majority, on the granting of the loan and its terms and conditions, in the case of loans up to the quota, and as to whether, for balance-of-payments reasons, any country should not be required to make a direct contribution in the case of any loan. The granting of a loan in excess of the quota and up to 200 per cent. of the quota will require a very strong majority and beyond that will require a unanimous decision. If one or more participants are not required to contribute to the financing of a loan, the requirements for approval of the loan must also be met with respect to the contributing participants.

5. Further work is needed to determine financing methods. These might include direct contributions and/or joint borrowing in capital markets. Until the full establishment of the new arrangement, there might also be temporary financing through credit arrangements between central banks.

6. Ministers and Governors agreed to recommend the immediate establishment of an ad hoc OECD Working Group, with representatives from all interested OECD countries, to prepare a draft agreement in line with the above principles. In their view this work should be concluded in time to permit approval by the OECD Council by the end of February 1975.

DIVORCE LAW REFORM (SCOTLAND)

3.54 p.m.

Mr. Robin F. Cook: I beg to move,
That leave be given to bring in a Bill to amend the law of Scotland relating to divorce, dissolution of marriage and judicial separation and to the power of the court to award interim aliment; and for purposes connected with the matters aforesaid.
It is now five years since this House carried through a far-reaching reform of the English law on divorce. Five years later the Scottish law on divorce remains obstinately stuck at the point from which the rest of the island departed in 1969. That, of itself, is not a compelling argument for reform. There are certainly anomalies which arise in the situation, but these we could thole if the Scottish law were satisfactory. However, it is not satisfactory. It is still firmly rooted in the doctrine of matrimonial offence. No couple in Scotland can obtain a divorce unless one spouse is prepared publicly to accuse the other spouse of adultery, desertion or cruelty. No marriage in Scotland can be ended unless the partners are prepared to pursue each other through the courts, one accusing the other. It is a formula for creating the maximum bitterness, humiliation and recrimination in the ending of what was once a personal matter. It is also a formula which guarantees the minimum likelihood of the couple coming to a sensible and lasting agreement on such questions as custody, access to children and maintenance payments.
Any hon. Member who has witnessed a couple going through the mill will be aware of how true the words of the Scottish Law Commission were when it observed in its report on divorce that the progress of the average defended case was "quite enough to kill any marriage stone-dead even if it may have had a flicker of life in it up to the trial."
If I obtain leave of the House to introduce the Bill, I shall introduce a measure similar to the Bills brought in by my hon. Friends the Members for Fife, Central (Mr. Hamilton) and Aberdeen, North (Mr. Hughes). It would scrap matrimonial offence as the basis of divorce, and replace it with the concept of irretrievable breakdown. Such a formula would enable the


State decently to bury a marriage which was already dead without obliging the courts to enter into a moral judgment as to which spouse killed the marriage.
I do not accept the argument that such a reform would make divorce any easier. It is a remarkable but true fact that the rate of increase in divorce in Scotland has accelerated faster in recent years than has been the case in England under the new law based on irretrievable breakdown.
Any couple in Scotland who both wish to obtain a divorce can obtain it under the present law provided they both agree to convince the court that an offence has occurred. Nevertheless, I admit that there are two distinct groups who would be able to obtain a divorce under this Bill but cannot do so at present. First, there are those couples who agree that their marriage is at an end, yet no matrimonial offence has taken place and they are not prepared to invent one. I have received a large mailbag since it was announced that I intended to try to bring in this Bill. I refer to one of those letters written by a gentleman living in the Borders. He and his wife agreed to part seven years ago. There was no adultery, no cruelty, and no wilful desertion, and neither spouse is prepared to pretend that there was. Neither spouse is prepared to take up the year's residence in England to obtain an English divorce under the present law. Therefore, there is no hope of their obtaining a divorce.
There is no point in deluding ourselves that by refusing to recognise that this marriage has broken down we are somehow strengthening the institution of marriage. We are not. We are simply making the law look an ass.
The second group enabled under the Bill to obtain a divorce who cannot now do so are those couples in respect of whom there has been a matrimonial offence but the spouse who is regarded in law as innocent is unwilling, or refuses, to bring an action for divorce.
I propose to include in my Bill a clause similar to the English provision whereby either party can bring an action for divorce after five years' separation. In previous debates hon. Members have seen this provision as enabling middle-aged husbands to discard ageing wives of whom they were tired. The belief that younger

women are irresistibly attracted to middle-aged men reveals considerable male conceit.
The most persuasive letters I have received arguing in favour of this clause have come from women. I refer to one letter I received from a woman writing from the West Coast who deserted her husband seven years ago because he battered her. Like many battered wives, she concealed the humiliation, and because neither neighbours nor relatives knew what happened she had no evidence or witnesses on which to ground a suit for cruelty. Since the husband will not divorce her for desertion she has no hope of freedom to marry the man she has since met. I see no possible social objective which is served by compelling her to live in adultery rather than in the married state. Nor is hers an isolated case. Looking at the figures for England, last year a clear, though narrow, majority of cases brought under the five-year rule was not brought by ageing male Casanovas but by women. I expect experience in Scotland to be similar if we reform our law in this way.
I recognise there are hon. Members who have very serious reservations regarding the provisions for reconciliation and maintenance payments to be included in any measure. I respect these reservations, and in many ways I share them. But I ask those hon. Members to note that we have been going over this ground for several years and that the Bill now on the shelf goes a long way to meeting these objections. In particular, the provisions for reconciliation are more generous than the present law and would enable a couple to attempt an experimental re-run of their marriage where at present they fear to do so lest they lose their grounds for an action for desertion.
Nearly every major body of informed opinion in Scotland accepts the case for reform, including the Church of Scotland and virtually the entire legal profession. I understand that the matter is now of such little controversy that it is unlikely to be opposed today. Why, then, do we still fail to reform the Scottish law on divorce five years after the reform of the English law and 10 years after the report of the Scottish Law Commission urging reform in very strong terms? Heaven knows, it is not for the want of trying.
This is the fifth attempt to introduce such a Bill since the English measure was passed. All the previous attempts have failed through lack of parliamentary time. This House made a very generous allowance of time available for the passage of the English measure, and that was not a Bill coming in the first eight on the Ballot. It really is high time that we made a similar facility available for a parallel reform of the Scottish law. It would be intolerable if this House continued to delay indefinitely the introduction of this necessary reform. It is one which would have a very significant impact on the lives of many of my countrymen, who will not lightly forgive this House if we continue to neglect them.

Question put and agreed to.

Bill ordered to be brought in by Mr. Robin F. Cook, Mr. W. W. Hamilton, Mr. John P. Mackintosh, Mr. Norman Buchan, Mr. David Steel, Mr. Malcolm Rifkind, Lord James Douglas-Hamilton, Mr. George Reid and Mr. James Sillars.

DIVORCE LAW REFORM (SCOTLAND)

Mr. Robin F. Cook accordingly presented a Bill to amend the law of Scotland relating to divorce, dissolution of marriage and judicial separation and to the power of the court to award interim aliment; and for purposes connected with the matters aforesaid: and the same was read the First time; and ordered to be read a Second time upon Friday 14th February and to be printed. [Bill 62.]

Orders of the Day — FINANCE BILL

(Clauses 5, 14, 16, 17, 33 and 49)

Considered in Committee [Progress, 15th January].

[Mr. GEORGE THOMAS in the Chair]

4.3 p.m.

Mrs. Margaret Thatcher: On a point of order, Mr. Thomas. It relates to Clause 16 and the selection of amendments. I do not query the selection as a matter of accuracy. However, the clause gives relief for certain businesses which may otherwise find themselves in financial difficulties. That relief is restricted to companies. Knowing that other people were in financial difficulties in running their businesses, it was our wish to extend that relief to sole traders and partnerships, whose need is just as great. I understand that the Opposition amendments which were tabled to enable us to discuss the scope of the tax are out of order and that the reason is that the Budget resolution has been very tightly drawn to restrict the relief to companies. What is more, another amendment has been ruled out of order because of the Budget resolution which prevents those with accounting periods falling between 31st March and 5th April from profiting by the clause.
I do not question the accuracy of your judgment. My complaint is about the Budget resolution. I understand that the Government cannot put down Budget resolutions which are so wide that hon. Members may raise any matter throughout the whole of the income tax Acts on what is, after all, a second Finance Bill. But this resolution prevents us from discussing the real scope of the tax.
Is it possible for the Government to put down an enabling resolution so as to enable hon. Members to discuss it? I should not like those who cannot claim the relief to think that we have not had their interests at heart.

The Chairman: I am obliged to the right hon. Member for Finchley (Mrs. Thatcher). She has interpreted the ruling much better than I was about to try to do. Resolution No. 16, which this House approved on 12th November, is narrowly drawn, and Providence protects me from


responsibility for the way that the Government draw their resolutions. I am afraid that I can only rule that the amendments are out of order because they are beyond the scope of the resolution.
I have looked at this difficulty in many ways to try to help the right hon. Lady. I am afraid that she must wait until the next Budget.

Mrs. Thatcher: I am grateful to you, Mr. Thomas, but I am a little more impatient than that. Will it be in order to raise these matters on the Question "That the clause stand part of the Bill"?

The Chairman: Yes, it will be.

Mr. Douglas Crawford: On a further point of order, Mr. Thomas. Like the right hon. Member for Finchley (Mrs. Thatcher), I do not query the accuracy of the selection of amendments. However, perhaps I might question its fairness. Neither the Scottish National Party nor Plaid Cymru is represented on the Standing Committee considering the Finance Bill. No amendment tabled in the name of either party has been selected for discussion. I suggest that none of those of us who represent the true voices of Scotland and Wales will be able to take part in any discussion of such important matters as agriculture, forestry and fishing.

The Chairman: If the hon. Member for Perth and East Perthshire (Mr. Crawford) tabled these amendments to the schedule, which is the proper place, he could have his discussion in the Standing Committee.

Mr. Dafydd Wigley: Further to that point of order, Mr. Thomas. The whole point is that the schedule is being considered in the Standing Committee, in which neither the Scottish National Party nor Plaid Cymru is represented. We have no voice on the Standing Committee. Indeed, the only hon. Member representing a Welsh constituency serving on the Standing Committee represents an industrial area of Wales which has nothing to do with these important social problems. That is why it is essential to discuss these matters in Committee here, if we have a chance to do so.

The Chairman: The hon. Member for Caernarvon (Mr. Wigley) knows that

there will be a Report stage. At that stage it will be possible for him to table his amendments and, if they are selected, to discuss them.

Clause 16

RELIEF FOR INCREASE IN STOCK VALUES IN FINANCIAL YEAR 1973

Mr. Cecil Parkinson: I beg to move Amendment No. 13, in page 12, line 5, after 'excess', insert:
'or such part thereof as the company shall claim'.

The Chairman: With this, we may discuss the following:
Amendment No. 79, in page 12, line 5, after 'excess', insert:
'or such smaller amount as claimed;'.
Amendment No. 14, in page 12, line 6, leave out 'excess' and insert 'claim'.
Amendment No. 80, in page 12, line 39, after 'period', insert:
'or such smaller amount if so claimed'.
Amendment No. 75, in page 14, line 32, at end add:
'(11) A company shall be entitled to claim any part of the relief available under this section.'.

Mr. Parkinson: I am sorry that we are starting the debate on this very important clause with a fairly narrow group of amendments, and I join my right hon. Friend the Member for Finchley (Mrs. Thatcher) in protesting about the way in which our discussions are having to take place.
When I thought about how to begin my remarks, my mind went back to a headline in Accountancy Age of 26th April, which read:
Barnett slams the Budget alarmists.
The Chief Secretary went on to say that the Budget would have only a very small effect on company liquidity. I quote briefly from that speech. He was reported to have said:
Some companies take the view that tax should be reserved early in the year and that once reserved is no longer available for investment or any other general use. If that point of view is accepted—and it is certainly applied by a large number of companies—the surcharge on ACT does not affect net liquidity as it was in any event part of the fund reserved for corporation tax.


In fairness, the Chief Secretary went on to say that other companies took a different point of view and regarded their tax reserves as being available for more general use. But we must assume that the right hon. Gentleman believed what he was saying, and the fact is that he said that tax reserves, by implication, were not available for general use and, therefore, that the alarm which went up about ACT and the additional corporation tax was misconceived. As he said, he "slammed" the alarmists.
I do not think that the right hon. Gentleman was right, but one must assume that he thought that he was right. If so, by the same token, a deferment tax, which is really what the Government offer in Clause 16, is of very limited benefit. It is interesting to note that the general accountancy bodies have recommended that the sum released should be set aside in a special deferred tax account and regarded as a sum which, at some time in the future—it might not be this year—will be clawed back. It will not be available as the company's general funds. It will be available, according to the right hon. Gentleman's earlier arguments, only for a very limited time or as a major source of investment in the company's business.
The fact that Clause 16 is in the Bill suggests that those who were alarmed last March and whom the right hon. Gentleman accused of being alarmist were justified in their actions, because the clause is evidence that the right hon. Gentleman has changed his mind and now accepts that the Budget last March, which, in his typically loyal way, he defended, did company liquidity considerable damage. Clause 16 is an admission that the right hon. Gentleman's remarks then were wrong. To paraphrase the Leader of the Liberal Party on another occasion, we are all alarmists now.
Secondly, in the run-up to the February election the Labour Party attacked the Conservative Government by implication for the high level of company profits then being declared in annual accounts. It was a constant theme of the Labour Party's campaign. Labour spokesmen attacked what they described as appalling profits, saying that they were a scandal.
By implication the Bill reveals once again that the Labour Party was making an entirely spurious and badly-based

attack. The very profits then supposed to be so scandalous and unacceptable and evidence of all sorts of terrible motives in the Conservative Government are the profits which are now to be relieved by Clause 16. Far from these profits being scandalous, we are told now that they are deserving of relief, must be relieved, and that company profitability, far from being excessive at that time, was barely enough to finance the additional strains on stock and so on. Thus, once more, one of the sticks used by the Labour Party to beat the Conservative Government is revealed as having been based more on a figment of the Labour Party's imagination than on reality.
Clause 16, if anything, is the Chancellor of the Exchequer's rather complicated way of admitting that the reasoning behind the increase in corporation tax and the surcharge on advance corporation tax has been totally abandoned. It is rather typical of the Chancellor that he has chosen to make this admission by way of an extremely complicated provision. However, many of us believe that the clause, while giving a welcome relief, is slightly unfair. For example, it takes no account of the company that ran down its stock through efficiency and used the money to invest in buildings. That company gets 40 per cent. relief, but it is at a disadvantage against the possibly inefficient company which built up its stocks to a level which was unnecessary at the time. It is an arbitrary relief.
4.15 p.m.
It would have been a much cleaner way of giving the relief, and perhaps would not have prejudiced the findings of the Sandilands Committee, if the Government had simply abandoned the ACT surcharge and possibly cut corporation tax, thus reversing some of the Chancellor's measures of 24th March.
Many problems arise from the rather peculiar way in which the relief is being given—for example, the fact that it really is a deferral and not a relief. As the Chief Secretary to the Treasury will know from his great practical experience, a number of companies could well find themselves at a disadvantage as a result of Clause 16 rather than at an advantage, unless Amendment No. 13 and others associated with it are accepted. These amendments have the simple basis that


the company should be allowed to take as much of the relief as will benefit it, that it should have a choice about the amount of relief it claims.
There is no need for me to recite the various other reliefs which are open to companies which might be adversely affected if they were forced to take the whole of this relief. My hon. Friends who have put their names to the associated amendments will deal with such aspects. But I want to refer briefly to three—group relief, liability to shortfall, and relief from double taxation.
A company could well be at a disadvantage if it were forced to take the whole of this relief. We do not see that, in accepting the amendments and making the tax a little more flexible, the Government would be doing anything to prejudice their objectives. We accept that the Chief Secretary is sincere in wanting to give relief to companies, that he wants to give a benefit to them or relieve their cash problems. He would give a greater relief if he allowed apportionment.
I suggest that many of the old standard Treasury answers about cost and so on are not available to the right hon. Gentleman today, although I am sure that someone somewhere will have managed to put a cost on a highly improbable set of circumstances, with all the variables involved.
We accept that the right hon. Gentleman has now admitted that he made a mistake last March and that he is sincere in wanting to give relief. We think that the relief could be more effectively given, at no greatly increased cost to the Treasury, if this small group of amendments were accepted.

The Chief Secretary to the Treasury (Mr. Joel Barnett): I am obliged to the hon. Member for Hertfordshire, South (Mr. Parkinson) for the very agreeable way in which he moved the amendment and for his kind quotations from my speeches, which I found interesting to hear again.
The hon. Gentleman pointed out that this is a deferral of tax. That is right. We have never hidden from the House of Commons that that is the intention of the tax, for a variety of reasons, some of which we shall come to on other amendments.
The hon. Gentleman made the point that the joint accountancy bodies to which we both owe some allegiance would have liked us to go much further. I know that they would like us to go much further on this and other issues, but we have to disagree with them.
The hon. Gentleman said that this is a short-term method of dealing with the problem. That is precisely what we have made clear. It is a short-term method of dealing with it, because we are giving what is, in effect, certainly not a complicated form of relief, as the hon. Gentleman suggested, but a rough and ready form of relief. We have admitted that, because we are awaiting the report of the Sandilands Committee, which we hope will be available for us for the spring Bill, when we would hope to bring in a form of relief which will be more suitable and which will meet many of the points the hon. Gentleman made.
For example, we accept that there will be companies which will not obtain relief under this clause, not necessarily because they are not limited companies or because they have less than £25,000 worth of stock but for a variety of other reasons, but would be, we hope, helped in the following years' relief that we intend to give and we have committed ourselves to giving.
I do not dispute that what we are doing in the clause is an arbitrary reform of relief. I do not propose on this narrow amendment to get involved in the argument about whether the March 1974 Budget was right or wrong. I am talking now about the substantial relief that we are giving under the clause. Because of the very nature of the representations we have received from many quarters and the fact that we recognised that many companies were having liquidity problems, we sought to help them in the short term with the tax that they would otherwise have had to pay in January of this year.
Because of that, and because of the administrative problems there would otherwise have been, given the short time span until January to enable the Revenue to make the necessary repayments where appropriate or not to collect the tax, it was crucial that the relief would be rough and ready and that by the nature of things some companies will not be helped which otherwise we would have


wanted to, as the hon. Gentleman wants to.
The question of the ACT surcharge is a totally different matter. The hon. Gentleman said that he would have preferred action to have been taken there. That will be repayable to companies anyway, whereas this form of relief is a positive reduction in taxation in this year just at the time when there is a liquidity problem.
I hope that the hon. Gentleman will recognise that we have tried to meet an immediate problem. We will meet the later issues in the spring Budget.
It is true, as the hon. Gentleman said, that in certain instances there will be companies which will not be able to use the relief this year. The hon. Gentleman cited companies which would have been able to take group relief, some shortfall problems, and the question of double taxation relief. The hon. Gentleman is right in one sense. On the other hand, any surplus losses created by the relief given under the clause will be available to carry forward against future profits, and in that sense I do not think that it is particularly ungenerous.
Indeed, I submit that what the hon. Gentleman proposes would make the situation more complicated rather than less complicated. It would add refinements that would make it more complicated for the Revenue in dealing with the very large number of claims which will be submitted despite the fact that we have limited it.
Further, if the Committee were to allow this right of disclaimer in order to carry forward some of the relief to another year, it would go right against the whole purpose of the clause. The purpose of the clause is just to give some help for this year. What will be done in the second and later years the House of Commons will have an opportunity to decide when we have the spring Finance Bill. If we start using some of the relief which would otherwise have been available for certain companies this year and allow it to be carried forward, it will get very confused with the relief, which may be different—we do not yet know what it will be—which we propose to introduce in the spring Finance Bill.
I therefore hope that it is clear to the Committee that this clause is by no

means the final version of the form of inflation-accounting relief that we shall eventually have in mind and that to add this further refinement and complication would not improve the situation but worsen it. I hope that the Committee will feel able to agree with me that it would be better to accept this admittedly rough and ready relief and come to the more refined form of relief when we have the spring Finance Bill.

Mr. J. Enoch Powell: When Chancellors of the Exchequer are preparing their Budgets it is one of the functions of their permanent advisers to remind them of certain well-tried principles of public finance of which they are in a sense the custodians. I imagine that when the Chancellor of the Exchequer was contemplating the proposal embodied in Clause 16 one such principle was brought to his attention—that is, that taxation should not be used for the purpose either of lending or of borrowing, that lending and borrowing is a separate relationship between Government and the citizen from that of taxation, and that the endeavour to confuse the one with the other always leads to more trouble than it is worth.
In the opposite sense of borrowing by taxation, we have all lived through the long and dreary experience of post-war credits which were the converse form of the use of taxation for a borrowing-lending purpose. Here, instead of offering a relief from taxation, instead of dealing with a problem directly fiscally, the Chancellor of the Exchequer has framed provisions which are a form of lending by the Government to corporations under the guise of taxation.
I predict not only that this will, as this and the succeeeding series of amendments show, cause inequities, irritations and difficulties in the short run but that the object of recouping the money and clawing it back in due course will be frustrated. That is one of those things which never happen in real life when one gets to them next year or the year after.
The circumstances of each Finance Bill ought to be looked at as they stand, and they should be looked at fiscally. In framing instead a form of loan, the Chancellor of the Exchequer has created inequities between one taxpayer and another taxpayer. The present series of


amendments draws attention to one inequity. It forces upon one group of taxpayers a loan which they may not want, a loan which may be disadvantageous to them. We shall come later on in the clause to other inequities.
I therefore believe that the principle which the Chancellor of the Exchequer has attempted to follow is wrong, and my hon. Friends and I will support the Opposition in marking their disapproval of that principle and of its consequences by this and subsequent amendments.

Mr. Peter Rees: I had not proposed to intervene in the debate, but I am bound to tell the Chief Secretary that after having listened to his speech I was left in such a state of perplexity that I was ready to conclude that possibly he had not understood the full scope and measure of relief which he is attempting to introduce by the clause.
It is not perhaps appropriate or necessary to debate the context in which we find the clause, although I would observe that, as I understand it, the Chancellor of the Exchequer is now endeavouring to redress the wrongs which he did to the corporate sector in his March Budget.
4.30 p.m.
I believe that if the clause were looked at with a clear eye, it is possibly all that the Chancellor could hope to pilot through with the support of his own party. If he had gone to his party and said "I did wrong in March. I deprived companies of cash resources which they could ill spare. I wish to make amends and reduce the rate of corporation tax", that would have been the simple and honourable way of dealing with the problem. However, he would never have got the support which he badly needs from the 60 or 70 Left-wing members in his party for such a measure, so he searched for a more dubious way of giving relief.
One can see the apparent lack of interest on the Government benches. The Chancellor no doubt said to himself that 90 per cent. of his party would not understand it and only the remaining 10 per cent. might understand, sympathise and approve. The Chief Secretary appears to nod his head or dissent—I do not know

which. I do not know whether he was party to these tactical thoughts of the Chancellor, but it is against that background that I judge the clause.
The Chief Secretary told us that this is a rough and ready clause. The measure of relief that it gives is haphazard in the extreme. The more efficient company which has a close measure of stock control and has limited stocks at the end of the appropriate accounting period will get little benefit from this measure of relief. The less effective company may get a considerable and perhaps unjustified measure of relief. This is inevitable when relief is dished out on this rough-and-ready basis in order apparently to obscure the issues underlying it. I hope that the Chief Secretary will come to this point later in this evening's proceedings.
Why is there to be no relief for debtors? The number of debtors at the year's end is considerably increased by the impact of inflation. Again, why exclude services? This shows that it is a crude measure of relief. Because it is a crude measure of relief I believe that the Committee should endeavour, so far as it can, to refine it. I believe that my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson), with his keen accountant's mind, has hit on one simple expedient which could be accepted by the Government, and that is to allow companies to select how much of the relief they wish to take up. My hon. Friend has demonstrated situations in which it would not be advantageous for a company to take up the full measure of relief to which it is entitled under the clause.
As has been pointed out, to refer to this as relief is a misnomer. I do not know whether I would call it a loan. At any rate, for the advantage gained in the present accounting period there will be comparable disadvantages in later accounting periods. It is very much a case of "timeo Danaos". I look upon any purported gifts from the Chief Secretary in this context with suspicion. This is a doubtful gift, and if it is a doubtful gift at least one should give the taxpayer the opportunity to reject it in part. Let him say "I will take so much."
I know the bureaucratic mind—not that I accuse the Chief Secretary of having a bureaucratic mind; I refer to the gentlemen in the Official Box who will be passing him notes—

Mr. Joel Barnett: indicated dissent.

Mr. Rees: I am delighted to know that the Chief Secretary is so confident in his grasp of the complexities of this horrifying Bill that he will be able to battle alone, unsupported not only by his hon. Friends but also by the gentlemen in the Box. This will be a unique occasion to see the Chief Secretary battling unaided, with his native wit and intelligence and with his profound grasp of the complexities of the matter.
Since I know that the bureaucratic mind gropes around for precedents, I remind the Chief Secretary that there is an established respectable precedent for allowing the taxpayer to decide how much of a particular relief advantage he may claim. That is in the most recent measure dealing with capital allowances. It escapes my mind whether it is the Finance Act 1971 or the Finance Act 1972 but the Chief Secretary, without the assistance of the gentlemen in the Box, will know at once.
There is a respectable precedent. This will refine the rather crude form of advantage which the Chief Secretary is offering. I urge him to consider a little more closely than he appears to have done the implications of what my hon. Friend is attempting to do and which he has rather summarily and, as I conceive it, without sufficient perception dismissed. I ask the Chief Secretary to reconsider this point, because it does not seem to me that he has done full justice to the implications of this measure and this amendment.

Mr. John Cope: I want to address most of my remarks directly to the amendment and I do not want to prejudice what we may discuss later on the clause.
The right hon. Member for Down, South (Mr. Powell) spoke about lending and borrowing problems. It is more a question of accelerating or retarding tax payments. The date on which one pays a bill, as every householder knows these days, is of the utmost importance. It amounts in a sense to a loan, but it amounts only to an acceleration or retarding of payment.
The right hon. Member for Down, South was out of the House last summer while we discussed the advance corpora-

tion tax, which is the same thing but in the other direction. What we are now discussing is a reversal of what we were discussing in the summer on the question of the ACT. It is true that these accelerating or retarding provisions make for a certain amount of inequity as between different groups, but so would any relief, particularly on the sort of rough-and-ready basis of this relief. I do not complain about the roughness or the readiness of it. We welcome the readiness and we have to accept the roughness.
To come to this question of part claims, the Chief Secretary said that it would be more difficult for the Inland Revenue if part claims were allowed. I do not think it would be. A claim would have to be agreed, of course, but in any case the Exchequer has to agree a total claim, so I do not see that it would be more difficult for the Exchequer to agree a part claim than it would be to agree a total claim. It would make the position easier for taxpayers.
At the moment there are some—not many—who, because of the circumstances in which they find themselves, will be on the horns of a dilemma as to whether to claim or not to claim in total. It would be easier for them if they were able to claim in part, as the amendment would provide. If they are on the horns of this dilemma and they see what the Chief Secretary said, that the spring Budget and the spring Finance Bill will sort it all out in the longer term and that more permanent and presumably less rough and ready measures will be introduced, they will not be able to wait for the spring Finance Bill to receive Royal Assent because they have to claim within three months of Royal Assent to this Bill, which, whenever it may come, is very unlikely to be within three months of Royal Assent to the spring Finance Bill so far as one can see. They will, therefore, be placed on the horns of a very real dilemma.
The amendment, which allows people a part claim, would get them out of this difficulty. There are other amendments to extend the period to three months and so on, but this amendment seems to provide one way out of the difficulty and it is perhaps the way we should choose until we get a better explanation from the Chief Secretary.

Mr. Joel Barnett: I take first the important point raised by the right hon. Member for Down, South (Mr. Powell) on the principle of whether taxation should ever be used for lending or borrowing. I hesitate to say it to the right hon. Gentleman, but I think he has missed the serious point in the whole sphere of taxation, that it is not unusual for a taxpayer to obtain tax relief in a certain way and then at a later stage to have to repay that relief. A simple example immediately springs to mind. If a company buys a piece of plant it will obtain capital allowances on it. If later it sells the plant at a profit in excess of the written down figure for tax purposes it will have to repay that tax relief. The principle is not dissimilar for the form of relief we are considering here.
I was going to deal with this point on a later amendment, but since the right hon. Gentleman raised it I shall take it up now. The right hon. Gentleman made the point that the way in which we are giving this relief will cause great inequity between taxpayers. If we did it the way he and others are suggesting and gave it as a final relief in one year, that would create much greater inequity with other taxpayers. If a company obtains substantial relief under Clause 16 because its stock has substantially increased, possibly in volume as well as in value, and then it goes out of business shortly after the year end and sells the whole of the stock at the inflated value, it will then have had substantial tax relief which I would hope the right hon. Gentleman and many others will not think it equitable for it to have.
In that sense the principle is the same as with capital allowances. I hope, therefore, that the right hon. Gentleman realises that this is why, when we were considering what is admittedly a rough and ready measure, we decided to implement it on a postponement basis rather than on a permanent basis or on a basis complicated by the refinements that the hon. and learned Member for Dover and Deal (Mr. Rees) suggested.

Mr. Nigel Lawson: The Chief Secretary's comments go right to the heart of the problem of accounting in an inflationary year. If there is to be a system of inflation accounting there is no way of making it both right and fair on a continuing basis and at the same time right

for a business which will come to an end at the end of that year. Different provisions have to be introduced for each case.

Mr. Barnett: The hon. Member is entirely making my point. We accept that our proposition is not inflation-proofing, and it cannot be. We are awaiting the report of the Sandilands Committee and we did not have time to put in the refinements which many hon. Members would like or the type of refinements suggested by the hon. and learned Member for Dover and Deal in respect of relief for debtors, services and so on. It is precisely because we wanted to do something quickly, which I am sure all hon. Members want, that we brought in this haphazard measure. I was delighted that the hon. Member for Gloucestershire, South (Mr. Cope) said that he welcomed the readiness and accepted the roughness of the scheme. I am obliged for that. We wanted to help companies quickly. We could not therefore provide relief by set-offs against other years or other companies. No one pretends that this is the ideal way of dealing with the problem in the longer term, but it gives a substantial measure of tax relief and helps the liquidity of a large number of companies in January this year, and I should have thought that would be supported by all members of the Committee.
For these reasons I hope that the Opposition will feel able to accept that the amendment does not serve the purpose that I have outlined.

4.45 p.m.

Mr. David Howell: My right hon. and hon. Friends have said enough to bring home some of the bizarre consequences that will flow from the wish of the Chief Secretary and the Government to resist these amendments. The Chief Secretary's insistence is on an all-or-nothing approach, and so the picture is conjured up of the Inland Revenue seeking to force a company which would prefer to take part of the relief or loan or whatever it is to take the full amount, to drink the last dregs from this chalice. This is a very peculiar twist in the many gyrations which the Government's taxation policies have already produced, and which the Chief Secretary has had the ill luck to promote at the Dispatch Box.
These very modest amendments, which were moved with extreme reason and


calmness by my hon. Friend the Member for Hertfordshire, South (Mr. Parkinson) deal simply with whether the Chief Secretary should stick so doggedly to the all-or-nothing approach in the case of companies which because of their tax situation may actually suffer a loss this year, a year in which, the Chief Secretary was saying a few moments ago, the Government want to help companies. The Chief Secretary did not go so far as to say that the Government want to correct and overcome the damage done to companies by their earlier measures. If his aim is as stated the Chief Secretary should know that there are companies which will not be helped. They will be made to suffer because this is a rough and ready proposition, because the Chief Secretary insists on it being all or nothing, because in those haunting words that we have heard before—"We wanted to do something quickly". That expression would make a marvellous epitaph on this administration's tombstone.
The Government have acted quickly and have produced a rough and ready scheme which produces the bizarre situation in which companies which the Chief Secretary said he wanted to help will be hindered and made to suffer. I think that he also said in his opening comments that losses incurred as a result of companies taking the scheme in full and it adversely affecting their overseas tax situation could be carried forward. I do not understand what he meant by that. However, if he meant that some other relief is to be generated in future years, that may be so, but it contradicts his proposition that he is trying to relieve the situation of the past year.
The Chief Secretary, his senior colleagues and the Government are leading themselves along a path to incredible complexities and difficulties with taxes of this kind. The contribution by the right hon. Member for Down, South (Mr. Powell) was the first and a timely indicator of the impossible situation into which the Government will wander before we go very much further with this Committee stage.
The Chief Secretary could easily have conceded this amendment. It was proposed in a perfectly reasonable way. By resisting it he will make much more trouble for himself and will arrive in a curious situation. I can see no reason why he should not have accepted the

amendment. We shall examine the arguments that the Chief Secretary has advanced for resisting the amendment and we shall consider whether to raise the whole matter again on Report. I will not advise my hon. Friends to press the amendment but I make clear to the Chief Secretary that he should not for one moment interpret our moderation in the matter either as typical of our feeling towards the measure or as an indication of the way in which we intend to proceed. We think he could have given way, but he has chosen not to do so. That is disappointing but it is not surprising, because this administration seem bent on binding and entangling themselves about with the worst and silliest forms of tax provision, not merely since the "window tax", which is the description Ian Macleod gave to SET, but since taxation was first devised to molest, bind and shackle man.

Amendment negatived.

Mr. Norman Lamont: I beg to move Amendment No. 18, in page 12, line 33, leave out subsection (4) and insert:
'(4) For the purposes of the Corporation Tax Acts other than this section and Schedule 3 to this Act in any case where a company is entitled to relief under this section:

(a) the company's opening stock value shall be treated as increased by an amount equal to its 1973 increase in stock value, and
(b) the value of the company's trading stock at the end of the period of account which ends on the day before that on which the opening stock value is determined shall not be increased by a like amount.

and all such adjustments shall be made in any assessment to Corporation Tax for any relevant accounting period as are necessary to give effect to any relief under this section'.
As has already been made clear, we partly welcome what the Chancellor of the Exchequer has done. It is a remarkable reversal on his part and one which the Chief Secretary, with an engaging lack of patriotism for his own past ideas, has just brushed aside. I shall not quote to the right hon. Gentleman the letter I wrote to the Chancellor in May about company liquidity and the answer I received, which was extremely complacent.
The question that will be asked in these debates is whether the Chancellor has gone far enough. Profits caused by inflation will now be largely ignored for


tax purposes, but it is noticable that the same principles have not been included in the Price Code. Both realism and consistency require that the same principles should apply. There is the question of companies which are not paying enough tax to benefit from the provisions, a category which might be thought to include companies such as British Leyland. There is also the matter of the speed with which the deterioration of the cash position of British companies is going on. This can be seen from the debt that the corporate sector has had to raise. In 1973 it raised in debt from the market £0·7 billion. In 1974 that had soared to the astonishing figure of £4·1 billion. The whole matter must be seen in the context of the projected £5 million deficit for the corporate sector in 1975, which at the time of the Budget the Chancellor scoffed at and treated as highly alarmist.
What has brought about this astonishing reversal in the Chancellor's attitudes? I suppose that the figures that have appeared for both investment and unemployment, when the unemployment figures were being published, have worried him. But I do not believe that the provisions of the clause, unless they are made more certain, and unless some of the threats about clawing back tax deferred are removed, will have the effects that the Chancellor hopes and intends. I believe that investment will fall even faster and that unemployment will rise even faster than would otherwise have happened unless some of the uncertainties are removed.
What happens in 1974–75 is perhaps even more important than what happened in 1973–74. In 1972 stock appreciation as a percentage of trading profits was 16½ per cent.; in 1973 it was 29½ per cent.; and in the first half of 1974 it had risen to an astonishing 65¼ per cent. The problem is growing, and we must not underestimate what will be required to deal with it.
The reasons for the uncertainty caused by the Chancellor's proposal relate to the special way in which he has chosen to give this relief. Under his system, the closing stock in one year becomes the opening stock in the next year. This leaves open the possibility that the relief may be clawed back at some future date.
What the amendment proposes is that instead of being subtracted from the closing stock, which then becomes an incorrect opening stock, the relief should be added to the old opening stock, leaving the closing stock as the correct amount. Unless there is an amendment along the lines we suggest, companies may find that in a few years' time, when they have either reduced stocks in value or volume or have a nil closing stock position, there is a large claw-back. That could happen when a company was closing down, or it could happen simply because it had become more efficient and was using less.
Furthermore, if the restriction in relief to amounts above the 10 per cent. of trading income continued, particularly if there were falling stocks or stable prices, the relief could be clawed back each year.
By the method proposed in the amendment, the closing stock would remain at its higher, correct figure and could be used as the opening stock in the next period, when perhaps the closing stock might be diminished in volume or value perhaps in a closing-down situation. This method would lead to a correct assessment of the tax position.
Under the Chancellor's proposal, the tax would be clawed back in a closing-down situation or when stocks were being used more efficiently. In a closing-down situation, even though stocks might be sold off at cost, a high profit figure would appear because of the artificially lower opening stock resulting from the method proposed by the Government.
One objection to the amendment might be that the Government's figure allows the balance sheet to balance whilst ours does not. We have had consultations on this matter, and the answer is that when £X relief was added to the opening stock one would also add £X relief as a contra to the capital loss account.
The object of the exercise, both on our part and the Government's part, is to avoid the payment of tax on an artificial part of profits. Our method would attribute the amount to previous years' profits, but only—this is the difference—after those profits had been assessed for tax. The Chancellor's method is to say that the profit has not yet been made


—a device which could lead to the clawing back of the relief given. In addition, the Chancellor's method of giving relief undervalues companies, a tendency that would increase as inflation accelerated.
The disadvantages of the Government's method are that it is simply a deferral of tax; that it gives no certainty for the future; that as stocks fall, perhaps through greater efficiency, the tax could be clawed back; and that, even if the present method continued and we reached a period of stabilisation of profits and tax, companies would then be in need of greater amounts of money to refinance expansion after a period of recession and slump. If a company ceased trading, the creditors would be badly affected under the Government's method because the Inland Revenue would have a substantial claim in a period in which stocks were lower, in a closing-down situation.
The method that we are proposing is one which would give greater assurances to industry. It is a cleaner and simpler method which would ensure that the relief given would not be clawed back at a higher rate of tax at some future date. The rate of corporation tax, which was 40 per cent., is now 52 per cent. The rate might well increase again at a later date.
I do not believe that as the relief is framed at present any accountant or banker when trying to assess a company's financial strength could view the relief granted as being anything other than a deferred liability. Therefore, the banking system will not be able to give credit and to underwrite the investment of industry in the way that the Government hope and expect.
I believe that the Chancellor has not gone far enough in the methods he has proposed. I believe that there will be considerable uncertainties and fears that the tax will be clawed back in future. Unless the Chief Secretary is able to accept the amendment, or one very much like it, I believe that the results that the Government wish to see from the relief will not appear.

[Mr. ALAN FITCH in the Chair]

5.0 p.m.

Mr. Joel Barnett: It is always agreeable to listen to the way in which the hon. Member for Kingston-upon-Thames (Mr.

Lamont) presents his case. At least on this occasion he did not tell me what I should not say. That is his customary practice. If we both abided by that practice we would have very much quicker debates.
The amendment seeks to change the method of relief so as to make it a final relief rather than as was intended—namely, a deferral or postponement. I dealt with the matter briefly in my reply to the right hon. Member for Down, South (Mr. Powell). In most cases the deferral would be indefinite. Any normal trading company would have an indefinite deferral. In any event we made it clear that the clause is only a temporary measure until we have the spring Finance Bill. We have made that clear.

Mr. Parkinson: I think that the Chief Secretary said something extremely important and I want to ensure that I heard him correctly. Did he say that it would be a permanent deferral for a trading company?

Mr. Barnett: I said that in most cases it will be a permanent deferral. If a trading company continues trading with its stocks at normal levels and it has its normal levels on the 1973 accounts at which it gets its present relief, and if inflation does not take a major turn downwards but stays at one level, there would be no question of any claw-back of the relief and the position would stay as it was. That would be the position until such time as a company closed down, sold off its stocks or took a similar course of action.

Mr. Peter Rees: Let us take the hypothetical figure of 8¼ per cent. when considering the rate of inflation and let us suppose that the rate dwindles from 19 per cent. to 8¼ per cent. Does it follow that the right hon. Gentleman would expect the relief to be clawed back? Is it only if inflation is at a constant 19 per cent. that the deferral is indefinite?

Mr. Barnett: I am sure that the hon. and learned Gentleman understands the position clearly. I have a feeling that he is having me on. If a company has a final stock of £100 and there is 20 per cent. inflation in the stock value, there will be a stock value of £120 at the end of the following year. A company would then be able to get relief under this system.


If the following year the rate of inflation was only 2 per cent. the value would still be higher than the previous £120. I hope that that is reasonably clear. I can see that the hon. and learned Gentleman has the point.

Mr. Cope: In saying that the relief will be indefinite—I believe that the right hon. Gentleman used the word "indefinite"—all that the Bill does is to alter the valuation of the closing stock. I am ignoring the amendment for the moment. There will be an alteration of the value of the opening stock as it becomes the closing stock. Therefore, there is an immediate claw-back under the Bill.

Mr. Barnett: I was coming to that point. I have been interrupted three times before I have hardly started. The hon. Gentleman presupposes that we shall do nothing else in any future Bill. We have made it clear that if nothing else were done and the clause stood it would be a deferral that would continue indefinitely. However, we have made it clear that there will be changes in the spring Bill. We shall have a refinement of the form of inflation accounting of stock plus anything else that we might do for companies when we have the Sandilands Report. If we do not have the report in time we shall have to do something else to ensure that there is additional relief. I thought that I had made that absolutely clear.

Mr. Geoffrey Dodsworth: I am not sure whether my comprehension is correct. If there is no further legislation it seems that deferment will be for one year only and that subsequently the tax will have to be paid. If that is not the case I shall be greatly obliged to the right hon. Gentleman if he will make it clear how it will be deferred.

Mr. Barnett: There will be deferment for one year if there is no legislation to change the clause as it stands. That is clear. However, we have made it even clearer still that we intend to change it. As I have said at least half a dozen times, this is a rough and ready measure which we are introducing for one year only. If we continued with the same kind of relief it would be for many companies a continuing permanent deferral. We are not

saying that this form of relief will be permanent. We are saying that in the spring Bill and, we hope, with the benefit of the Sandilands Report we shall introduce a more relevant form of relief.
If we did nothing else and the clause were to stand I accept that the fears which have been expressed would be understandable and that people would be right to have such fears. However, we have made it clear that we shall do something else. There is no question of automatic claw-back of the relief. I hope that I have been able to assure the Committee that the automatic claw-back of the relief is not in contemplation. If we did not intend to claw back the relief it could be argued that the amendment would be the best approach. Each year there would be a final form of relief. I have already argued that it is not the best approach to have a permanent form of stock inflation-accounting for companies and to have a permanent position year by year. I hope to show—I tried briefly to do so in reply to the right hon. Member for Down, South—that it would be inequitable to allow relief on a final basis.
I have made it clear on a number of occasions that this is a provisional form of relief. It is an advance instalment that will eventually, as we have made clear, apply to all traders and not only to companies with stocks in excess of £25,000. It is a method of giving immediate relief to companies with liquidity problems. By the very nature of things it is a rough and ready measure. It would be wrong, when the relief that we are now giving gives larger companies, or at least those with a stock in excess of £25,000, an advance instalment of the eventual permanent relief that will be on the statute book, not eventually to make large companies subject to the same rules that will be applicable to everyone else. That is why this is a temporary measure and why we do not believe it is right to give this relief on a permanent rather than a deferral basis.

Mr. John Loveridge: The Committee would be grateful for an assurance that none of the relief so given will be clawed back. When the Chancellor spoke on 12th November of this postponement of tax liability he said:
If no further steps were taken, the tax forgone this year would automatically be


clawed back in the following year. But this, of course, is not contemplation."—[Official Report, 12th November 1974; Vol. 881, c. 265.]
What we would like is an assurance that those words were a pledge. Can the right hon. Gentleman give us that assurance?

Mr. Barnett: I can give the hon. Gentleman and the Committee the assurance that it is not contemplated that there will be a general claw-back. There will be instances when relief will be clawed back. I hope the Committee will agree that it is right that there should be. Suppose a company was given 100 per cent. tax relief on a piece of plant and then it sold that plant at the full price. The tax relief is clawed back. That is not unusual. I am sure that hon. Members would agree that in such an instance it would be wrong to allow the company to retain the relief. The same principle applies to stock.

Mrs. Thatcher: indicated dissent.

Mr. Barnett: I am sorry; I must disagree with the right hon. Lady. It does. Suppose a company had increased its stock in this year we are talking about by, let us say, £100,000—not because of inflation but because of increased volume. The Government gave it this relief so that the increase was wholly tax-free. The day after that year ended the company completely sold the stock. It surely would not be right for that company to have the whole of the £100,000 tax-free.

Mrs. Thatcher: We are not at cross-purposes here. The right hon. Gentleman knows that usually there is a different provision for cessation and there is nothing to prevent him from putting up special provisions for cessation which would be quite usual. I do not accept his analogy of capital allowances and balancing charges. It is wholly different. The balancing charge comes on a specific event for a specific amount. It is misleading and clouds the position to bring in what is not a true analogy.

Mr. Barnett: I do not agree with the right hon. Lady. This instance would not only apply to cessation of business. A company could carry on trading. Its stock could have been excessively high at the 1973 year end. The stock might then have come down permanently to a much lower level. It cannot be right to give an enormous amount of relief to the com-

pany. This is not meant to be a permanent relief for companies which have not had inflationary increases in stock. It is to misrepresent and misunderstand the purpose of the clause to suggest that that is so.
The purpose of the clause is to give immediate relief to companies who have had inflationary stock increases. If they had not had such increases on a permanent basis it cannot be right to continue such relief indefinitely. I cannot believe that the right hon. Lady would want to spend taxpayers' money in that way. We are giving a substantial amount of relief in this way. To go beyond that, as the amendment seeks to do, would be indefensible. The hon. Member for Kingston-upon-Thames said that it would be wrong to pay tax on artificial profits. I submit that it would be even more wrong to pay tax relief on artificial losses or where there have not been losses at all.

5.15 p.m.

Mr. Ian Stewart: For the sake of clarity, may I ask whether the Chief Secretary is willing to give an assurance to the Committee, and to the wider audience which is taking such an interest in this discussion, to the effect that the Government will introduce measures in the spring Finance Bill which will be no less favourable to companies which benefit from the present arrangements, except only if there is a reduction in the stock level of a company carrying on a continuing business or in the theoretical possibility of an increase in the value of money and deflation takes place as opposed to inflation? The Committee needs this clear assurance because the Chief Secretary's illustrations have not made entirely clear the form of assurance he is giving.

Mr. Peter Rees: So far I find that I am being incited, as a result of the Chief Secretary's replies, to speak when I had not intended to. The replies of the right hon. Gentleman constantly leave me with the impression that he has not really grasped the inwardness of the amendment or the inwardness of the relief which he is endeavouring not to foist on the business community. [Interruption.] I say "foist" because it is an echo of our debates on the last amendment. The Chief Secretary would not have it that


a company could pick and choose about relief. However, I do not want to reopen that particular wound which the right hon. Gentleman has inflicted on the commercial life of the country.
The amendment is meant to ensure that, while there will be an advantage for a company which claims this relief in relation to the accounting period ended 1973, there will not be a corresponding disadvantage in the subsequent accounting period. The Chief Secretary appears to have missed the point. The point is that there should not be a corresponding disadvantage. The Chancellor, in his ill-judged March measures, inflicted considerable damage on the cash flow of companies. This modest measure of relief is an effort to redress that damage, to a limited degree. We are concerned to see that this, in turn, will not be offset by a corresponding disadvantage in subsequent accounting periods. That is all the amendment seeks to do.
To talk about relief being perpetuated indefinitely opens up new vistas not related to the amendment. My hon. Friends and I noted with great interest that in the light of the Sandilands Committee's report, whatever it may be, there may be an endless vista of relief for companies. This is good news. This is not what the amendment seeks to claim. It will be noted far and wide what the Chief Secretary has offered. It will be noted that he has become more generous since our debates in the dog days of June and July. We are happy to note his change of heart. I ask him to move away from the generalised generosity he has offered us—which we accept with gratitude—to the specific point made in the amendment, which is that there should not be a corresponding disadvantage in the next accounting period for any company that claims the advantage or relief in 1973.
As the Chief Secretary will have divined, it will be a matter of fine calculation for companies whether to claim the relief. Many people will not know whether or not to claim it. They will not be entirely reassured by the Chief Secretary's breezy statement that the Government will adopt Sandilands and perpetuate the relief indefinitely. For the moment, all we ask for the people who have to make this crucial decision

is that the Chief Secretary should accept the amendment, which ensures that the relief will not be taken away by a corresponding detriment in subsequent accounting periods.
I hope that I have made myself clear to the Chief Secretary, who has not intervened. I hope, Mr. Fitch, that he will have the opportunity of catching your eye to show that he has had a change of heart from five minutes ago.

Mr. Lawson: The Chief Secretary seems to have been saying that he knows that the system is a rotten one, arbitrary and unfair, but, a terrible mistake having been made in March, it is the best system that the Treasury could cobble together in a hurry before something respectable is done in the forthcoming Budget. We agree that it is a shabby way of attempting to deal with the company liquidity problem and accounting at a time of inflation. We are trying to find out more precisely from the Chief Secretary with what he proposes to replace the system. We do not wish to anticipate his right hon. Friend's Budget, but the Chief Secretary argued against the amendment chiefly by saying that there is something better in the pipeline which will put it right.
Will the Chief Secretary please cease talking about reliefs? We are talking not about a relief for the corporate sector but about getting away from a system in which, because of inflation, companies are taxed on phoney profits, which are not genuine profits but the paper creation of a mixture of inflation and orthodox accounting principles of the so-called "doomsday machine" which are putting respectable, profitable and efficient companies into bankruptcy. A measure to prevent that happening because of the high degree of inflation is not relief but a measure of justice. May it be established that we are not talking about measures of relief but about measures taken to avoid imposing ever higher burdens of taxation at a time of rapid inflation?
Will the Chief Secretary make clear that what he is talking about as a replacement for this one-off clause is not merely a more refined system of providing for the element of inflation in stock appreciation to be taken into account but inflation accounting in the fullest sense, taking into


account the effect of depreciation, which is a major point in company accounts and profits, and that it will be introduced in the forthcoming Budget? Will the right hon. Gentleman say that it will not be confined to stock appreciation, important though that is, but will be introduced regardless of whether the Sandilands Committee has reported by that date? We want full inflationary accounting. It is a form of indexation. The Chief Secretary knows the importance attached by many Opposition Members to indexation at a time of rapid inflation, not merely for the corporate taxation sector but for individuals.
When the matter of corporate liquidity was discussed in Committee on the Finance Bill eight months ago, the Government's attitude was summed up by the Paymaster-General. I do not wish to pick on the Paymaster-General, who is probably the most well-informed member of the Treasury team on economic matters, but he said:
I turn now to the question of company liquidity. There was a discussion about Government statements on company liquidity, and figures were given as to the net position compared with the figures which the Government had quoted after taking account of company indebtedness. The £14,000 million referred to as the current company indebtedness, which is to be set off against liquidity figures stated by the Government, is not expected to be called in.
He came to the astonishing conclusion that we had no evidence of a serious liquidity problem. He went on to say:
If there were to be such a problem, that would obviously be a factor of which we should have to take account.
Later he said:
According to our information, there is much liquidity in the possession of companies."—[Official Report, 21st May 1974; Vol. 874, c. 232–4.]
That was manifestly nonsense at the time and it is now. Was it bigotry? It could hardly have been unawareness of the fact of inflation. Surely it could not have been lack of awareness of the consequence of inflation on profits. It could not have been unawareness of the existence of the rigid Price Code and price control which existed then and is continuing to cripple company liquidity.
How did the Government manage to get it so wrong then, and what is their view now? Do they think that there is a serious liquidity crisis now? Do they

think that Clause 16 is adequate, or do they think that further steps need to be taken to improve company liquidity at a time when there will be a chain reaction of bankruptcies, starting with smaller companies because they are not so likely to be bailed out, if something is not done to recognise the position of British industry?

Mr. Joel Barnett: I always like to try to help the hon. and learned Member for Dover and Deal (Mr. Rees). The hon. Member for Blaby (Mr. Lawson) asked whether I know what he wants. The answer is "Yes", and I hope that one day he will get it.

Mr. Lawson: As the right hon. Gentleman has answered a question which I did not ask, will he please answer the questions I did ask?

Mr. Barnett: The hon. Member for Hitchin (Mr. Stewart) asked for an assurance about the relief given by Clause 16. I thought I had made absolutely clear that if we did nothing else but Clause 16 there would be a claw-back. The Chancellor said that there would be new measures in the spring Bill, and that is why there is no general claw-back after this year. There is no question of that, and I give that assurance.
I have been accused by the hon. and learned Member for Dover and Deal of "generalised generosity". It is true that this form of relief is arbitrary, but anything that we could have done in a short time would have been arbitrary.

Mr. Peter Rees: How about using corporation tax?

Mr. Barnett: Using corporation tax would have been much more arbitrary. It would not necessarily have gone to the areas which suffer from inflation. I was surprised at the view taken by the hon. and learned Member for Dover and Deal.

Mr. Peter Rees: rose—

5.30 p.m.

Mr. Barnett: I cannot give way to the hon. and learned Gentleman. No doubt I shall be hearing him often in these debates. He told me that he is easily incited, and I know that only too well. But when he said that I am foisting relief on companies, I think that is taking things a little too far. If he likes to think that


we are foisting relief on companies, I should have thought that would be generally welcome.
As I have said before, and I say again, in regard to the assurance we gave companies as to whether they should be happy with this relief and as to whether it would all be clawed back next time, the answer for most companies is that it will not be clawed back. Most companies will maintain stock levels and there will be no question of clawing back of relief. But the whole purpose behind the amendment is to give relief permanently. For the various reasons I gave previously, that cannot be right. It would not be right to give relief on a permanent basis, and I hope that the Committee will reject the amendment.

Mrs. Thatcher: I do not think we can accept the Chief Secretary's assurance, because he has given some rather contradictory assurances. He said first that the relief will not be clawed back, and he then said that it might be taken back in certain circumstances. He then got a little muddled about permanent relief. There is nothing in the amendment to

Division No. 63.]
AYES
[5.32 p.m.


Adley, Robert
Cooke, Robert (Bristol W)
Goodlad, Alastair


Aitken, Jonathan
Cope, John
Gorst, John


Alison, Michael
Cormack, Patrick
Gow, Ian (Eastbourne)


Arnold, Tom
Corrie, John
Gower, Sir Raymond (Barry)


Atkins, Rt Hon H. (Spelthorne)
Costain, A. P.
Grant, Anthony (Harrow C)


Awdry, Daniel
Crouch, David
Griffiths Eldon


Baker, Kenneth
Crowder, F. P.
Grimond, Rt Hon J.


Banks, Robert
Davies, Rt Hon J. (Knutsford)
Grist, Ian


Beith, A. J.
Dean, Paul (N Somerset)
Grylls, Michael


Bell, Ronald
Dodsworth, Geoffrey
Hall, Sir John


Bennett, Dr Reginald (Fareham)
Douglas-Hamilton, Lord James
Hall-Davis, A. G. F.


Benyon, W.
Drayson, Burnaby
Hamilton, Michael (Salisbury)


Berry, Hon Anthony
du Cann, Rt Hon Edward
Hampson, Dr Keith


Biffen, John
Dunlop, John
Hannam, John


Biggs-Davison, John
Durant, Tony
Hastings, Stephen


Blaker, Peter
Dykes, Hugh
Havers, Sir Michael


Body, Richard
Eden, Rt Hon Sir John
Hawkins, Paul


Boscawen, Hon Robert
Edwards, Nicholas (Pembroke)
Hayhoe, Barney


Bowden, A. (Brighton, Kemptown)
Elliott, Sir William
Heath, Rt Hon Edward


Boyson, Dr Rhodes (Brent)
Emery, Peter
Heseltine, Michael


Bradford, Rev Robert
Eyre, Reginald
Hicks, Robert


Braine, Sir Bernard
Fairbairn, Nicholas
Higgins, Terence L.


Brittan, Leon
Fairgrieve, Russell
Holland, Philip


Brotherton, Michael
Fell, Anthony
Hooson, Emlyn


Brown, Sir Edward (Bath)
Finsberg, Geoffrey
Hordern, Peter


Buchanan-Smith, Alick
Fisher, Sir Nigel
Howell, David (Guildford)


Buck, Antony
Fletcher, Alex (Edinburgh N)
Howell Ralph (North Norfolk)


Budgen, Nick
Fookes, Miss Janet
Howells, Geraint (Cardigan)


Bulmer, Esmond
Fowler, Norman (Sutton C'f'd)
Hurd, Douglas


Burden, F. A.
Freud Clement
Hutchison, Michael Clark


Butler, Adam (Bosworth)
Fry, Peter
Irving, Charles (Cheltenham)


Carr, Rt Hon Robert
Galbraith, Hon T. G. D.
James, David


Chalker, Mrs Lynda
Gardiner, George (Reigate)
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)


Channon, Paul
Gardner, Edward (S Fylde)
Jessel, Toby


Churchill, W. S.
Gilmour, Sir John (East Fife)
Johnson Smith, G. (E Grinstead)


Clark, Alan (Plymouth, Sutton)
Glyn, Dr Alan
Jones, Arthur (Daventry)


Clarke, Kenneth (Rushcliffe)
Goodhart, Philip
Jopling, Michael


Cockcroft, John
Goodhew, Victor
Joseph, Rt Hon Sir Keith

prevent him having a totally different method of relief. I understand that the Chancellor of the Exchequer wants to give the relief during a period of inflation. We want that, too. However, by his method he is not giving relief during a period of inflation; he has deferred relief during a period of inflation.

Our amendment makes certain that relief will be given this year and cannot be taken back. It is not a permanent relief, but it is a certain relief for this year. Therefore, I think that we should vote on this amendment. The point about volume will be taken care of by the limitation to 10 per cent. on trading income. Even if it were not taken care of, the relief is inadequate in view of the liquidity position of many companies. It would not hurt the Chancellor to give a little extra relief on increased volume as well, to make certain that the companies get relief and that it is not taken away from them next year.

Question put, That the amendment be made:—

The Committee divided: Ayes 239, Noes, 273.

Kaberry, Sir Donald
Morrison, Peter (Chester)
Shelton, William (Streatham)


Kellett-Bowman, Mrs Elaine
Mudd, David
Shepherd, Colin


Kershaw, Anthony
Neave, Airey
Silvester, Fred


King, Evelyn (South Dorset)
Nelson, Anthony
Sims, Roger


King, Tom (Bridgwater)
Neubert, Michael
Sinclair, Sir George


Kitson, Sir Timothy
Newton, Tony
Skeet, T. H. H.


Knight, Mrs Jill
Nott, John
Smith, Cyril (Rochdale)


Knox, David
Onslow, Cranley
Spence, John


Lamont, Norman
Oppenheim, Mrs Sally
Spicer, Jim (W Dorset)


Lane, David
Page, Rt Hon R. Graham (Crosby)
Spicer, Michael (S. Worcester)


Latham, Michael (Melton)
Pardoe, John
Sproat, Iain


Lawrence, Ivan
Parkinson, Cecil
Stainton, Keith


Lawson, Nigel
Pattie, Geoffrey
Stanbrook, Ivor


Le Marchant, Spencer
Penhaligon, David
Stanley, John


Lewis, Kenneth (Rutland)
Percival, Ian
Stewart, Ian (Hitchin)


Lloyd, Ian
Peyton, Rt Hon John
Stokes, John


Loveridge, John
Pink, R. Bonner
Taylor, R. (Croydon NW)


Luce, Richard
Powell, Rt Hon J. Enoch
Taylor, Teddy (Cathcart)


McCrindle, Robert
Price, David (Eastleigh)
Tebbit, Norman


Macfarlane, Neil
Prior, Rt Hon James
Temple-Morris, Peter


MacGregor, John
Pym, Rt Hon Francis
Thatcher, Rt Hon Margaret


Macmillan, Rt Hon M. (Farnham)
Raison, Timothy
Thomas, Rt Hon P. (Hendon S)


McNair-Wilson, M. (Newbury)
Rathbone, Tim
Thorpe, Rt Hon Jeremy (N Devon)


McNair-Wilson, P. (New Forest)
Rawlinson, Rt Hon Sir Peter
Trotter, Neville


Madel, David
Rees, Peter (Dover &amp; Deal)
Tugendhat, Christopher


Marten, Neil
Rees-Davies, W. R.
van Straubenzee, W. R.


Mates, Michael
Renton, Rt Hon Sir D. (Hunts)
Viggers, Peter


Mather, Carol
Renton, Tim (Mid-Sussex)
Wakeham, John


Maude, Angus
Rhys Williams, Sir Brandon
Walder, David (Clitheroe)


Maudling, Rt Hon Reginald
Ridley, Hon Nicholas
Walker, Rt Hon P. (Worcester)


Mawby, Ray
Ridsdale, Julian
Walker-Smith, Rt Hon Sir Derek


Maxwell-Hyslop, Robin
Rifkind, Malcolm
Walters, Dennis


Mayhew, Patrick
Roberts, Michael (Cardiff NW)
Weatherill, Bernard


Meyer, Sir Anthony
Roberts, Wyn (Conway)
Wells, John


Miscampbell, Norman
Ross, Stephen (Isle of Wight)
Whitelaw, Rt Hon William


Mitchell, David (Basingstoke)
Ross, William (Londonderry)
Wiggin, Jerry


Moate, Roger
Rossi, Hugh (Hornsey)
Winterton, Nicholas


Molyneaux, James
Rost, Peter (SE Derbyshire)
Young, Sir G. (Ealing, Acton)


Monro, Hector
Sainsbury, Tim
Younger, Hon George


Moore, John (Croydon C)
St. John-Stevas, Norman



More, Jasper (Ludlow)
Scott, Nicholas
TELLERS FOR THE AYES:


Morris, Michael (Northampton S)
Shaw, Giles (Pudsey)
Mr. John Stradling Thomas and


Morrison, Charles (Devizes)
Shaw, Michael (Scarborough)
Mr. Hamish Gray.




NOES


Abse, Leo
Coleman, Donald
Evans, John (Newton)


Allaun, Frank
Colquhoun, Mrs Maureen
Ewing Harry (Stirling)


Anderson, Donald
Conlan, Bernard
Ewing, Mrs Winifred (Moray)


Archer, Peter
Cook, Robin F. (Edin C)
Fernyhough, Rt Hon E.


Armstrong, Ernest
Corbett, Robin
Flannery, Martin


Ashley, Jack
Cox, Thomas (Tooting)
Fletcher, Ted (Darlington)


Ashton, Joe
Craigen, J. M. (Maryhill)
Foot, Rt Hon Michael


Atkins, Ronald (Preston N)
Crawford, Douglas
Ford, Ben


Atkinson, Norman
Cronin, John
Forrester, John


Bain, Mrs Margaret
Cryer, Bob
Fraser, John (Lambeth, N'w'd)


Barnett, Guy (Greenwich)
Cunningham G. (Islington S)
Freeson, Reginald


Barnett, Rt Hon Joel
Cunningham, Dr J. (Whiteh)
Garrett, John (Norwich S)


Bates, Alf
Dalyell, Tam
Garrett, W. E. (Wallsend)


Benn, Rt Hon Anthony Wedgwood
Davidson, Arthur
George, Bruce


Bennett, Andrew (Stockport N)
Davies, Bryan (Enfield N)
Gilbert, Dr John


Bldwell, Sydney
Davies, Denzil (Llanelli)
Ginsburg, David


Blenkinsop, Arthur
Davies, Ifor (Gower)
Golding, John


Boardman, H.
Davis, Clinton (Hackney C)
Gould, Bryan


Booth, Albert
Deakins, Eric
Gourlay, Harry


Bottomley, Rt Hon Arthur
Dean, Joseph (Leeds West)
Graham, Ted


Boyden, James (Bish Auck)
de Freltas, Rt Hon Sir Geoffrey
Grant, John (Islington C)


Bradley, Tom
Delargy, Hugh
Grocott, Bruce


Bray, Dr Jeremy
Dell, Rt Hon Edmund
Hamilton, James (Bothwell)


Brown, Hugh D. (Provan)
Dempsey, James
Hamilton, W. W. (Central Fife)


Buchan, Norman
Doig, Peter
Hamling, William


Buchanan, Richard
Dormand, J. D.
Hardy, Peter


Butler, Mrs Joyce (Wood Green)
Douglas-Mann, Bruce
Harrison, Walter (Wakefield)


Callaghan, Rt Hon J. (Cardiff SE)
Duffy, A. E. P.
Hart, Rt Hon Judith


Callaghan, Jim (Middleton &amp; P)
Dunn, James A.
Hattersley, Rt Hon Roy


Campbell, Ian
Dunnett, Jack
Hatton, Frank


Cant, R. B.
Dunwoody, Mrs. Gwyneth
Hayman, Mrs Helene


Carmichael, Neil
Edelman, Maurice
Healey, Rt Hon Denis


Carter, Ray
Edge, Geoff
Heffer Eric S.


Carter-Jones, Lewis
Edwards, Robert (Wolv SE)
Henderson, Douglas


Cartwright, John
Ellis, John (Brigg &amp; Scun)
Hooley, Frank


Castle, Rt Hon Barbara
Ellis, Tom (Wrexham)
Horam, John


Clemitson, Ivor
English, Michael
Howell, Denis (B'ham, Sm H)


Cocks, Michael (Bristol S)
Evans, Ioan (Aberdare)
Hoyle, Douglas (Nelson)







Huckfield, Les
Meacher, Michael
Spriggs, Leslie


Hughes, Rt Hon C. (Anglesey)
Mellish, Rt Hon Robert
Stallard, A. W.


Hughes, Mark (Durham)
Mikardo, Ian
Stewart, Donald (Western Isles)


Hughes, Robert (Aberdeen N)
Millan, Bruce
Stewart, Rt Hn M. (Fulham)


Hughes, Roy (Newport)
Miller, Dr M. S. (E. Kilbride)
Stoddart, David


Hunter, Adam
Miller, Mrs Millie (Ilford N)
Stott, Roger


Irvine, Rt Hon Sir A. (Edge Hill)
Mitchell, R. C. (Soton, Itchen)
Strang, Gavin


Irving, Rt Hon S. (Dartford)
Molloy, William
Strauss, Rt Hon G. R.


Jackson, Colin (Brighouse)
Moonman, Eric
Summerskill, Hon Dr Shirley


Jackson, Miss M. (Lincoln)
Morris, Alfred (Wythenshawe)
Taylor, Mrs Ann (Bolton W)


Janner, Greville
Morris, Charles R. (Openshaw)
Thomas, Mike (Newcastle E)


Jay, Rt Hon Douglas
Morris, Rt Hon J. (Aberavon)
Thomas, Ron (Bristol NW)


Jeger, Mrs Lena
Mulley, Rt Hon Frederick
Thompson, George


Jenkins, Hugh (Putney)
Murray, Ronald King
Thorne, Stan (Preston South)


Jenkins, Rt Hon Roy (Stechford)
Newens, Stanley
Tierney, Sydney


John, Brynmor
Noble, Mike
Tinn, James


Johnson, James (Hull West)
Ogden, Eric
Tomlinson, John


Johnson, Walter (Derby S)
Orbach, Maurice
Torney, Tom


Jones, Alec (Rhondda)
Ovenden, John
Wainwright, Edwin (Dearne V)


Jones, Barry (East Flint)
Owen, Dr David
Walden, Brian (B'ham, L'dyw'd)


Judd, Frank
Padley, Walter
Walker, Harold (Doncaster)


Kaufman, Gerald
Palmer, Arthur
Walker, Terry (Kingswood)


Kelley, Richard
Park, George
Ward, Michael


Kerr, Russell
Parker, John
Watkins, David


Kilroy-Silk, Robert
Parry, Robert
Watkinson, John


Lambie, David
Pavitt, Laurie
Watt, Hamish


Lamborn, Harry
Perry, Ernest
Weetch, Ken


Lamond, James
Phipps, Dr Colin
Weitzman, David


Latham, Arthur (Paddington)
Prentice, Rt Hon Reg
Wellbeloved, James


Leadbitter, Ted
Price, C. (Lewisham W)
Welsh, Andrew


Lever, Rt Hon Harold
Price, William (Rugby)
White, Frank R. (Bury)


Lewis, Ron (Carlisle)
Rees, Rt Hon Merlyn (Leeds S)
White, James (Pollock)


Lipton, Marcus
Richardson, Miss Jo
Whitehead, Phillip


Litterick, Tom
Roberts, Gwilym (Cannock)
Whitlock, William


Lomas, Kenneth
Robertson, John (Paisley)
Wigley, Dafydd


Loyden, Eddie
Roderick, Caerwyn
Willey, Rt Hon Frederick


Luard, Evan
Rodgers, George (Chorley)
William, Alan (Swansea W)


Lyon, Alexander (York)
Rodgers, William (Stockton)
Williams, Alan Lee (Hornchurch)


Lyons, Edward (Bradford W)
Rooker, J. W.
Williams, Rt Hon Shirley (Hertford)


MacCormick, Iain
Ross, Rt Hon W. (Kilmarnock)
Williams, W. T. (Warrington)


McElhone, Frank
Rowlands, Ted
Wilson, Alexander (Hamilton)


MacFarquhar, Roderick
Ryman, John
Wilson, Gordon (Dundee E)


McGuire, Michael (Ince)
Sandelson, Neville
Wilson, Rt Hon (Huyton)


Mackenzie, Gregor
Sedgemore, Brain
Wilson, William (Coventry SE)


Mackintosh, John P.
Selby, Harry
Wise, Mrs Audrey


Maclennan, Robert
Shaw, Arnold (Ilford South)
Woodall, Alec


McMillan, Tom (Glasgow C)
Sheldon, Robert (Ashton-u-Lyne)
Woof, Robert


Madden, Max
Shore, Rt Hon Peter
Wrigglesworth, Ian


Magee, Bryan
Short, Mrs Renée (Wolv NE)
Young, David (Bolton E)


Mahon, Simon
Silkin, Rt Hon John (Deptford)



Marks, Kenneth
Sillars, James
TELLERS FOR THE NOES:


Marquand, David
Silverman, Julius
Mrs. Betty Boothroyd and


Marshall, Dr Edmund (Goole)
Skinner, Dennis
Mr. Joseph Harper.


Marshall, Jim (Leicester S)
Smith, John (N Lanarkshire)



Mason, Rt Hon Roy
Snape, Peter

Question accordingly negatived.

5.45 p.m.

Mr. Cope: I beg to move Amendment No. 22, in page 12, line 38, leave out from 'value' to 'and' in line 39.

The Temporary Chairman: I think that it would be convenient for the Committee to discuss at the same time Amendment No. 70, in page 12, line 37, after 'to', insert 'ninety per cent. of', and Amendment No. 30, in page 13, line 7, leave out paragraph (b).

Mr. Cope: Amendments Nos. 22 and 30 go together, while No. 70 is a halfway house—or rather, a nine-tenths-way house—and I will return to it in a moment.
This, for want of a better word, relief is calculated by taking the opening and

closing stocks and finding the difference—the stock appreciation for the year. However, for some reason which I cannot fathom, that figure is then reduced by 10 per cent. of the trading profits of the business for the year, as defined in the clause. I have been able to find no explanation for this reduction, which distorts, or rather reduces, the deferral for companies whose profits are high relative to their stocks. Those with efficient stock management get a lower relief anyway under the main principles of the relief, but those with efficient general management, which therefore achieve high profits, find that their relief is cut further by this 10 per cent. provision.
Suppose that three companies are operating shops in identical circumstances, except that one has weak and inefficient


management and stock control, the second has good stock control but makes little profit and the third is efficient in every sense, with excellent stock control and large profits. The first company would get the greatest relief, the second would get the next highest relief and the least relief would go to the most efficient company, the third one. This provision will not benefit what is fittest and best in British industry, as the Chancellor seemed to be calling for in his recent speech.
This can be taken a stage further. When a company makes a loss in this period, there will be no reduction at all in the relief as a result of the 10 per cent. provision. It is true that if it makes a loss for tax purposes there will be no corporation tax to pay, so the relief will not apply anyway, but, nevertheless, it will be able to carry it forward in the way that the Chief Secretary described earlier.
This 10 per cent. is supposed to relate to the trading income, but this is not what we would normally understand by that phrase. It is, in fact, trading income plus capital appreciation or capital allowances. This provision is in subsection (9). No doubt we shall discuss later whether the capital allowances should be included in this definition of trading income for these purposes. But whatever decision we take later on the point about capital allowances, with the Bill as it stands it seems even more wrong that 10 per cent. of the capital allowances as well as 10 per cent. of the ordinary trading income should be deducted from the stock relief which is to be allowed. I find that again a very peculiar concept.
The Chief Secretary said earlier—it has been said many times previously—that this is a rough and ready relief. The points related to this 10 per cent. and to the inclusion of 10 per cent. of capital allowances as well as 10 per cent. of trading income do not make it rougher. They are misguided attempts to refine this stock appreciation.
If the amendment were accepted—as I hope it will be—it will be making the relief larger, but it will also make it simpler. It will increase the readiness of the relief, in a sense. That is something which the Chief Secretary has emphasised throughout in discussing this matter, as has the Chancellor. They have been

saying that they wanted a simple relief which they could find quite quickly. If Amendments Nos. 22 and 30 were accepted and we took out this 10 per cent. provision, a section of the calculation would be removed away from the relief. One would be taking out two pieces, a whole section of the calculation—in some ways the biggest and most complicated section, although "complicated" is an exaggeration because it is not that complicated. But it takes out a whole piece and simplifies it.
This would open another door. We have been told that the reason why this stock appreciation relief cannot apply to smaller companies, let alone partnerships and individuals, is that the Inland Revenue is unable to cope with the complexities of it across all companies and that it can manage it only across those with more than £25,000-worth of stock. Here I am offering a way to the Chief Secretary of simplifying the relief without lowering the equity—in fact, increasing it—and enabling him to go some way, if not wholly to accept our later amendments, to include the smaller businesses, to which relief of this kind is quite as important as it is to the larger businesses. No doubt we shall be discussing this matter in more detail, but this opens the door a little for the Chief Secretary by allowing the Government to simplify the relief which is available.
I appreciate that the Treasury may argue that the whole of the stock appreciation which has taken place is not the result of price increases or of inflation. I would entirely accept that argument. Not 100 per cent. of the rise in stock values is the result of that. I should have thought that in the interests of simplicity and of helping British business it would be in the interests of the Government and the nation that the whole of it should be allowed for this relief. But in order that the Treasury should not be able to hide too much behind that argument we have also tabled Amendment No. 70.
It has been calculated that, at least on national aggregates, about 90 per cent. of the total increase in stock values in the period to which the amendments and the clause refer is a realistic estimate of the actual amount of stock appreciation. Obviously, it cannot be a precise estimate. We have, therefore, taken the figure of 90 per cent. and tabled Amendment No.


70 as an alternative way of reducing the relief a little to bring it more directly into line with the increase in stock values as the result of price increases. This system would also be simpler than the system proposed in the Bill, which we are attempting to remove with Amendments Nos. 22 and 30.
I should much prefer the Chief Secretary to accept Amendments Nos. 22 and 30 and leave it at that. Nevertheless, I thought it right that we should give the Government a bit of an escape route in the form of Amendment No. 70, so that they cannot shelter behind that particular argument, which otherwise they may be inclined to do.
To sum up, it seems that no case has been made, so far at any rate, for reducing this relief by 10 per cent. of trading income for the efficient company and that even less of a case has been made for reducing it by 10 per cent. of the capital allowances. We shall come to the details of whether these should be included in later amendments. But we have not heard a case for reducing the relief in this way. Therefore, I have great pleasure in commending the amendment, which I hope will be carried by the Committee.

Mr. Joel Barnett: I am most grateful to the hon. Gentleman for the way in which he is trying to help us, in providing different ways of relief and offering me a choice in these matters. He said that no case had been made for the 10 per cent. reduction. He will forgive me for saying so, but I thought he was doing precisely that in the words that he used in speaking to Amendment No. 70. However, I shall return to that matter when I have dealt with the points he made about Amendments Nos. 22 and 30.
I have tried to make clear in the previous debates that our aim in giving this relief was to try to give some relief to companies against the effect of inflation on their stock increases. But the way we have done it is not simply to give relief for all increases, some of which might have been from increases in volume as well as increases in value. As we wanted to help quickly, as I have said, we had to do it in a sort of rough and ready, quick way, until we got to a new and complete system, which we shall introduce in the spring Bill.
It is really not possible in those circumstances to frame the relief in such a way as to distinguish adequately—I accept that point—between companies which have genuinely suffered from inflation and those which have had a simple increase in volume. With respect to the hon. Gentleman, the amendments cannot do that either. Nothing can do that. It is just a matter of what one cares to choose.
The hon. Gentleman asked why we use the 10 per cent. figure. To some extent he answered that question when he spoke to Amendment No. 70. We restricted it by 10 per cent. in the case of the clause and the trading profits because it broadly corresponds with the increase in value of stocks for an average of companies in a normal year.
6.0 p.m.
The hon. Gentleman half-recognised that some of the stock increases would have arisen in any normal year whether or not there had been inflation. In normal years when there have been stock increases because of the growth in the company, we normally give a form of relief by inflation-proofing the stock. We have taken the 10 per cent. figure on a very rough and ready basis. I do not say it is ideal, but neither are the hon. Gentleman's amendments. There is no ideal way of accomplishing the purpose if we want to do it quickly.
The restrictions have the effect of confining the relief to those companies which experience abnormal increases in the value of their stocks because of inflation. It also concentrates the relief to a greater extent on those companies with substantial stocks compared with their profits, whose need is greater. Although that will apply to companies which are perhaps more efficient, there will be some instances where companies will not benefit.
This brings me to Amendment No. 70, which was pressed upon us by the CBI. The effect of this amendment would be to take 90 per cent. of the increase instead of 100 per cent.—in other words, still leaving the 10 per cent.—presumably for a reason similar to ours. However, it is taken in a different way. It gives relief to the straight 90 per cent. of the straight increase in stock. For that reason, it is as rough and ready as anything we have


proposed in Clause 16. The method proposed by the hon. Gentleman is even more indiscriminate than the method we have adopted under Clause 16.
There is an even more important reason why I am not able to accept these amendments. They would add considerably to the cost of an already substantial amount of relief. I am surprised that no hon. Member from the Opposition has welcomed the substantial amount of relief given to companies, which is something that has never been done before.

Mr. Parkinson: May I urge the Minister to cease saying most of the time that the tax is deferrable and then claiming, when it suits him, that he is giving us a substantial relief. It is not substantial relief. He is giving us a deferral.

Mr. Barnett: We are constantly told that companies now have liquidity problems. We are affording relief to their liquidity problems this year. I have said that if we accepted the first group of amendments the cost of the substantial relief to be afforded would be considerable. The benefit could go to a considerable number of companies which are less deserving than those which are to be given relief for their liquidity problems under the terms of Clause 16. I hope that the hon. Gentleman will feel that what we have done under Clause 16, whilst not ideal, is probably better than the method he seeks to adopt.

Mr. Powell: As the examination of this clause proceeds, the nature of the predicament in which the Chief Secretary finds himself becomes ever clearer. Each successive debate proves how right were hon. Members who said that the manner in which he is doing what he is doing in Clause 16 is essentially evasive, for political reasons.
There are two separate objectives which are constantly confused in the Chief Secretary's exposition. One is the proposition, which featured in the Budget speech, of relieving the liquidity crisis of companies. For that purpose, what was required was a relief in taxation at this time, whether deferment or not. However, when hon. Members begin to examine the logic, in that context, of such a deferment of tax liability, they are told that this is the first instalment, a hastened instalment, of whatever is to be the perma-

nent law on inflation accounting of stocks for tax purposes. There is no necessary relationship between those two objects. An attempt to improve the liquidity position of the company sector by a first essay in inflation accounting of stocks for tax purpose is bound to result in all kinds of inequities and absurdities, some of which have already been shown up.
If we are to have proper account taken of inflation in the tax system where the valuation of stocks is involved, it will be necessary to separate not only the increase in the volume of stocks from the increase in the value of stocks but the increase in the real value of stocks—by which is meant their relative value to other things—from that increase in their money value which merely reflects ongoing inflation.
As regards the clumsy 10 per cent. of trading income, this is an absurd attempt to find a formula which will somehow set on one side the sheep of inflationary increases in value from the goats of real increase in value or increase in volume. Every explanation given by the Chief Secretary is shot through with the consequences of his basic dilemma. The Chancellor of the Exchequer wished to dress up the reality of what he was doing, which was to take less money in taxation from the company sector. That is what he wanted to do. But then he did not like doing that he was embarrassed to do that openly, so he said "We are doing it only by way of deferral. It will all be clawed back." That would not wash, for presently the Chief Secretary had to say "No, theoretically if we stopped here it would be clawed back. But it will not be clawed back because this operation is different. This operation is the beginning of a permanent change in the tax law" which has to do with the inflation-accounting of stocks, something not necessarily in any way related—only incidentally related, and anomalously related—to the liquidity crisis in the company sector.
I hope the amendments will be pressed because they serve to bring home the essentially evasive nature of what the Government are doing and, therefore, their failure to accomplish what they set out to do—namely, directly, specifically and fairly, as between one company and another, to relieve the liquidity crisis. The Government could do that only by means


of straight relief in taxation, against which they set their faces. Hence all the confusion. Hence the unfairness which is bound to follow in the operation of this law and which I fear will be a bad introduction and a bad preface to future legislation dealing with inflation accounting in the context of taxation.

Mr. Dodsworth: I plead with the Chief Secretary to reconsider his decision not to accept Amendment No. 70. I believe that the clause is nonsense in its present form, and if I go on to explain why I take that view I hope that it will help the right hon. Gentleman to reconsider his position.
It has been made clear by the right hon. Member for Down, South (Mr. Powell) that we are seeking to help industrial companies with a cash flow difficulty. However, the Government have started at the end of the calculation by asking themselves how much money they have and which is the best way to find a formula for its distribution. The formula that they have chosen is not a very happy one.
Looking at the effect of these proposals, we find that we shall reduce the relief—and I call it "relief", though perhaps a better word would be "deferral"—by 10 per cent. of trading income. That means that the more trading profits a company makes, the more corporation tax it is likely to pay, and the more the reduction in the relief that it will be given. That is the consequence of that calculation.
Another and even more curious feature is that we find that we are to make an adjustment for capital investment. What is more, the very companies that we want to go on investing in industry will have their reduction in the relief increased by the amount that they are investing. That is nonsense. I cannot comprehend that if it is our clear policy to try to help industry. It is nothing other than a piece of very sharp mathematics.
There is another anomaly. If we look at stocks as a means of calculating the relief, we are choosing an arbitrary date, which always appeals to accountants—and I have to admit to being one myself. We are choosing the year-end as the date for doing this. Many companies have seasonally high stock levels which do not

coincide with their year-ends. If we try to support the increased cost of stock levels due to inflation and we choose the year-end, we are not always choosing the appropriate date at which to make that judgment.
To confuse the issue by grasping at the straw of the report of the Sandilands Committee and prejudging it presumably to decide what choice to make between replacement cost accounting and current purchasing power seems to be a surprising decision to have taken without giving a full explanation to the Committee.
I hope that the Chief Secretary will take this opportunity of reconsidering the matter by accepting this amendment and perhaps redoing his homework on the way that the relief should be given.

Mr. Joel Barnett: As was to be expected, the right hon. Member for Down, South (Mr. Powell) understood the problem perfectly but came to the wrong conclusion. This deals with the remarks of the hon. Member for Hertfordshire, South (Mr. Parkinson). He asked for a full explanation. The explanation applies to both interventions.
We wanted to give relief to companies hardest hit by inflation. The right hon. Member for Down, South implied that it was evasive for political reasons. He suggested that we should have given the relief directly to companies through a straight cut in corporation tax.
The Opposition cannot accept, apparently, that it is just possible that we decided to give the relief in this way because we felt that it would be the best way of getting the relief to those companies whose stocks had suffered most from inflation.
If we are to give back money to the tune of £800 million and we give it by a straight reduction in corporation tax, that is no more equitable and no more likely to direct that relief to companies most in need than the method we are adopting here, as rough and ready as it is. On the contrary, it is much less likely to do that. It is more likely to give relief to those companies which have suffered least from inflation.
There are large numbers of companies which need relief because their stocks have grown substantially as a result of


inflation. If we adopted the proposals of the Opposition, they would get a derisory amount of relief compared with what they will get under this clause.
6.15 p.m.
That is the answer to the right hon. Member for Down, South, and he failed to grasp it. He chose to decide that we had done it for evasive political reasons. He failed to accept that it is possible that we decided to do it because we thought it the best way of giving relief to those companies which needed it. It would have been simpler to have saved ourselves all this trouble in the debates on this clause and to have given a straight relief. But that would not have done the job anything like as well as Clause 16 does.
For these reasons, I must ask my right hon. and hon. Friends to resist the amendment—

Mr. Cope: The right hon. Gentleman seemed to suggest in answer to me that the principal reason for the 10 per cent. was the cost of it. He did not say what the cost would be. But is he saying that accepting Amendment No. 70 would be more or less expensive to the Treasury, and that that is the reason for resisting the amendment, or is he saying that it would be cheaper to do it the CBI way, in which case he is choosing the more expensive way in order to help the less efficient?

Mr. Barnett: The cost is incalculable. We do not know the profits of the companies until we have seen their accounts. But on the 90 per cent. one and the CBI's idea, I doubt whether the difference would be very great.
I am not resisting the amendments purely on cost grounds. I do it for the reasons that I have given. We believe that this is the better way of dealing with the problem.

Mr. Cope: But the right hon. Gentleman must have calculated the 10 per cent. It has been deducted already in arriving at the figure given at the time of the Budget.

Mr. Barnett: It is a different method from the method that we have adopted. We have not been able to calculate it. It is not possible to do so.

Mr. David Howell: The Chief Secretary is beginning to sound indignant. He

has only himself to blame if his brief produces this penumbra of ambiguity which is bewildering to some and arouses suspicion in others.
My right hon. and hon. Friends have made no secret of the proposals in these amendments. They are to give more assistance to the company sector. We do not disguise our belief that more assistance is needed.
The Chancellor of the Exchequer got matters badly wrong and totally under-estimated the situation in March. Despite his attempt to reverse his judgments in November, we suspect that there is still a grotesque under-estimation of the need to get money back into the company sector.
We share the view of the Chancellor of the Exchequer that resources should be switched back into investment and into profitability. We think that that should be done. We think that it should be done through decreasing consumption, notably, at this time, consumption by the State. Therefore, we are not ashamed of putting forward amendments which would increase the amount of help that the Chancellor judged was right in November in order to reverse the effects of his March measures.
The Chief Secretary has said several times that if we did what we suggest we should be assisting some firms which increased their stocks through volume as well as appreciation in paper values. He has said that this would derogate from the intention to produce some genuine inflation-proofing, some genuine means of overcoming inflation-blind taxation. But Clause 16 itself is not a pure piece of inflation-proofing. On the contrary, the right hon. Gentleman has said that it is rough and ready and designed only for one year.
The right hon. Gentleman is trying again and again to have it both ways. He admits that Clause 16 is rough and ready, in which case we offer ways to improve it and to assist firms in grave difficulty by allowing them to keep more of their own earnings, increase their profitability and revive investment, which is flat on its back as we move into 1975. If that is what the right hon. Gentleman believes, he should accept the amendment. On


the other hand, if he does not believe it, he must believe that what the Government propose is the first golden step on the road to inflation-proofing and to taxation which takes account of the appalling rate of inflation. If that is so, Clause 16 should not be rough and ready but, on the contrary, should be something which he intends to make permanent.
But then the right hon. Gentleman tells us that the provision is not to be permanent and that something will be introduced to replace it. We have been presented with a merry-go-round of contradictions. It is absurd to say that this rough and ready measure will help firms particularly badly hit by inflation. Everyone suffers from inflation to some extent. Every economic, commercial and financial operation is hurt by the constant and accelerating depreciation in the value of money. To argue that this rough and ready measure is sufficiently unready and

Division No. 64.]
AYES
[6.28 p.m.


Adley, Robert
Davies, Rt Hon J. (Knutsford)
Hannam, John


Aitken, Jonathan
Dean, Paul (N Somerset)
Hastings, Stephen


Alison, Michael
Dodsworth, Geoffrey
Havers, Sir Michael


Amery, Rt Hon Julian
Douglas-Hamilton, Lord James
Hawkins, Paul


Arnold, Tom
Drayson, Burnaby
Hayhoe, Barney


Atkins, Rt Hon H.(Spelthorne)
du Cann, Rt Hon Edward
Heath, Rt Hon Edward


Awdry, Daniel
Dunlop, John
Henderson, Douglas


Bain, Mrs Margaret
Durant, Tony
Heseltine, Michael


Baker, Kenneth
Dykes, Hugh
Higgins, Terence L.


Banks, Robert
Eden, Rt Hon Sir John
Holland, Philip


Beith, A. J.
Edwards, Nicholas (Pembroke)
Hooson, Emlyn


Bell, Ronald
Elliott, Sir William
Hordern, Peter


Bennett, Dr Reginald (Fareham)
Emery, Peter
Howell, David (Guildford)


Benyon, W.
Ewing, Mrs Winifred (Moray)
Howell Ralph (North Norfolk)


Berry, Hon Anthony
Eyre, Reginald
Howells, Geraint (Cardigan)


Biffen, John
Fairbairn, Nicholas
Hurd, Douglas


Biggs-Davison, John
Fairgrieve, Russell
Hutchison, Michael Clark


Body, Richard
Fell, Anthony
Irving, Charles (Cheltenham)


Boscawen, Hon Robert
Finsberg, Geoffrey
James, David


Bowden, A. (Brighton, Kemptown)
Fisher, Sir Nigel
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)


Boyson, Dr Rhodes (Brent)
Fletcher, Alex (Edinburgh N)
Jessel, Toby


Bradford, Rev Robert
Fookes, Miss Janet
Johnson Smith, G. (E Grinstead)


Braine, Sir Bernard
Fowler, Norman (Sutton C'f'd)
Jones, Arthur (Daventry)


Brittan, Leon
Freud Clement
Jopling, Michael


Brotherton, Michael
Fry, Peter
Joseph, Rt Hon Sir Keith


Brown, Sir Edward (Bath)
Galbraith, Hon T. G. D.
Kaberry, Sir Donald


Buchanan-Smith, Alick
Gardiner, George (Reigate)
Kellett-Bowman, Mrs Elaine


Buck, Antony
Gardner, Edward (S Fylde)
Kershaw, Anthony


Budgen, Nick
Gilmour, Sir John (East Fife)
Kimball, Marcus


Bulmer, Esmond
Glyn, Dr Alan
King, Evelyn (South Dorset)


Burden, F. A.
Goodhart, Philip
King, Tom (Bridgwater)


Carr, Rt Hon Robert
Goodhew, Victor
Kitson, Sir Timothy


Chalker, Mrs Lynda
Goodlad, Alastair
Knight, Mrs Jill


Channon, Paul
Gorst, John
Knox, David


Churchill, W. S.
Gow, Ian (Eastbourne)
Lamont, Norman


Clark, Alan (Plymouth, Sutton)
Gower, Sir Raymond (Barry)
Lane, David


Clarke, Kenneth (Rushcliffe)
Grant, Anthony (Harrow C)
Latham, Michael (Melton)


Cockcroft, John
Gray, Hamish
Lawrence, Ivan


Cooke, Robert (Bristol W)
Griffiths Eldon
Lawson, Nigel


Cope, John
Grimond, Rt Hon J.
Le Marchant, Spencer


Cormack, Patrick
Grist, Ian
Lewis, Kenneth (Rutland)


Corrie, John
Grylls, Michael
Lloyd, Ian


Costain, A. P.
Hall, Sir John
Loveridge, John


Crawford, Douglas
Hall-Davis, A. G. F.
Luce, Richard


Crouch, David
Hamilton, Michael (Salisbury)
MacCormick, Iain


Crowder, F. P.
Hampson, Dr Keith
McCrindle, Robert

unrough to help precisely the firms that suffer from inflation, and that our proposals would damage its purity, and then to point out that it is to be discarded anyway because it will be of no further use beyond the end of this year is to distort and to twist the argument. It is testing our patience and our readiness to try to follow the right hon. Gentleman through these tortuous arguments.

The right hon. Gentleman knows the ambiguity in his argument, but still tries to have it both ways. Because of that attitude, because assistance to these companies is so desperately required, and because we have no faith in the persistently wrong judgments of the Chancellor of the Exchequer about what is needed, we shall press the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 249, Noes 263.

Macfarlane, Neil
Peyton, Rt Hon John
Stainton, Keith


MacGregor, John
Pink, R. Bonner
Stanbrook, Ivor


Macmillan, Rt Hon M. (Farnham)
Powell, Rt Hon J. Enoch
Stanley, John


McNair-Wilson, M. (Newbury)
Price, David (Eastleigh)
Stewart, Donald (Western Isles)


McNair-Wilson, P. (New Forest)
Prior, Rt Hon James
Stewart, Ian (Hitchin)


Madel, David
Pym, Rt Hon Francis
Stokes, John


Marten, Neil
Raison, Timothy
Stradling Thomas, J.


Mates, Michael
Rathbone, Tim
Taylor, R. (Croydon NW)


Mather, Carol
Rawlinson, Rt Hon Sir Peter
Taylor, Teddy (Cathcart)


Maude, Angus
Rees, Peter (Dover &amp; Deal)
Tebbit, Norman


Maudling, Rt Hon Reginald
Rees-Davies, W. R.
Temple-Morris, Peter


Mawby, Ray
Reid, George
Thatcher, Rt Hon Margaret


Maxwell-Hyslop, Robin
Renton, Rt Hon Sir D. (Hunts)
Thomas, Rt Hon P. (Hendon S)


Mayhew, Patrick
Renton, Tim (Mid-Sussex)
Thompson, George


Meyer, Sir Anthony
Rhys Williams, Sir Brandon
Trotter, Neville


Miscampbell, Norman
Ridley, Hon Nicholas
Tugendhat, Christopher


Mitchell, David (Basingstoke)
Ridsdale, Julian
van Straubenzee, W. R.


Moate, Roger
Rifkind, Malcolm
Viggers, Peter


Monro, Hector
Roberts, Michael (Cardiff NW)
Wakeham, John


Moore, John (Croydon C)
Roberts, Wyn (Conway)
Walder, David (Clitheroe)


More, Jasper (Ludlow)
Ross, William (Londonderry)
Walker, Rt Hon P. (Worcester)


Morris, Michael (Northampton S)
Rossi, Hugh (Hornsey)
Walker-Smith, Rt Hon Sir Derek


Morrison, Charles (Devizes)
Rost, Peter (SE Derbyshire)
Walters, Dennis


Morrison, Peter (Chester)
Sainsbury, Tim
Watt, Hamish


Mudd, David
St. John-Stevas, Norman
Weatherill, Bernard


Neave, Airey
Scott, Nicholas
Wells, John


Nelson, Anthony
Shaw, Giles (Pudsey)
Welsh, Andrew


Neubert, Michael
Shaw, Michael (Scarborough)
Whitelaw, Rt Hon William


Newton, Tony
Shelton, William (Streatham)
Wiggin, Jerry


Nott, John
Shepherd, Colin
Wigley, Dafydd


Onslow, Cranley
Sims, Roger
Wilson, Gordon (Dundee E)


Oppenheim, Mrs Sally
Sinclair, Sir George
Winterton, Nicholas


Page, Rt Hon R. Graham (Crosby)
Skeet, T. H. H.
Young, Sir G. (Ealing, Acton)


Pardoe, John
Smith, Cyril (Rochdale)
Younger, Hon George


Parkinson, Cecil
Spence, John



Pattie, Geoffrey
Spicer, Jim (W Dorset)
TELLERS FOR THE AYES:


Penhaligon, David
Spicer, Michael (S. Worcester)
Mr. Adam Butler and


Percival, Ian
Sproat, Iain
Mr. Fred Silvester.




NOES


Abse, Leo
Cox, Thomas (Tooting)
Garrett, W. E. (Wallsend)


Allaun, Frank
Craigen, J. M. (Maryhill)
George, Bruce


Anderson, Donald
Cronin, John
Gilbert, Dr John


Archer, Peter
Cryer, Bob
Ginsburg, David


Armstrong, Ernest
Cunningham, G. (Islington S)
Golding John


Ashley, Jack
Cunningham, Dr J. (Whiteh)
Gould, Bryan


Ashton, Joe
Dalyell, Tam
Gourlay, Harry


Atkins, Ronald (Preston N)
Davidson, Arthur
Graham, Ted


Atkinson, Norman
Davies, Bryan (Enfield N)
Grocott, Bruce


Barnett, Guy (Greenwich)
Davies, Denzil (Llanelli)
Hamilton, James (Bothwell)


Barnett, Rt Hon Joel
Davies, Ifor (Gower)
Hamilton, W. W. (Central Fife)


Bates, Alf
Davis, Clinton (Hackney C)
Hamling, William


Benn, Rt Hon Anthony Wedgwood
Deakins, Eric
Hardy, Peter


Bennett, Andrew (Stockport N)
Dean, Joseph (Leeds West)
Harrison, Walter (Wakefield)


Bldwell, Sydney
de Freitas, Rt Hon Sir Geoffrey
Hart, Rt Hon Judith


Blenkinsop, Arthur
Delargy, Hugh
Hattersley, Rt Hon Roy


Boardman, H.
Dell, Rt Hon Edmund
Hatton, Frank


Booth, Albert
Dempsey, James
Hayman, Mrs Helene


Bottomley, Rt Hon Arthur
Doig, Peter
Healey, Rt Hon Denis


Boyden, James (Bish Auck)
Dormand, J. D.
Heffer Eric S.


Bradley, Tom
Douglas-Mann, Bruce
Hooley, Frank


Bray, Dr Jeremy
Duffy, A. E. P.
Horam, John


Brown, Hugh D. (Provan)
Dunn, James A.
Howell, Denis (B'ham, Sm H)


Buchan, Norman
Dunnett, Jack
Hoyle, Douglas (Nelson)


Buchanan, Richard
Dunwoody, Mrs. Gwyneth
Huckfield, Les


Butler, Mrs Joyce (Wood Green)
Edelman, Maurice
Hughes, Rt Hon C. (Anglesey)


Callaghan, Rt Hon J. (Cardiff SE)
Edge, Geoff
Hughes, Mark (Durham)


Callaghan, Jim (Middleton &amp; P)
Edwards, Robert (Wolv SE)
Hughes, Robert (Aberdeen N)


Campbell, Ian
Ellis, John (Brigg &amp; Scun)
Hughes, Roy (Newport)


Canavan, Dennis
Ellis, Tom (Wrexham)
Hunter, Adam


Cant, R. B.
English, Michael
Irvine, Rt Hon Sir A. (Edge Hill)


Carmichael, Neil
Evans, Ioan (Aberdare)
Irving, Rt Hon S. (Dartford)


Carter, Ray
Evans, John (Newton)
Jackson, Colin (Brighouse)


Carter-Jones, Lewis
Ewing Harry (Stirling)
Jackson, Miss M. (Lincoln)


Cartwright, John
Fernyhough, Rt Hon E.
Janner, Greville


Castle, Rt Hon Barbara
Flannery, Martin
Jay, Rt Hon Douglas


Clemitson, Ivor
Fletcher, Ted (Darlington)
Jeger, Mrs Lena


Cocks, Michael (Bristol S)
Foot, Rt Hon Michael
Jenkins, Rt Hon Roy (Stechford)


Coleman, Donald
Ford, Ben
John, Brynmor


Colquhoun, Mrs Maureen
Forrester, John
Johnson, James (Hull West)


Conlan, Bernard
Fraser, John (Lambeth, N'w'd)
Johnson, Walter (Derby S)


Cook, Robin F. (Edin C)
Freeson, Reginald
Jones, Alec (Rhondda)


Corbett, Robin
Garrett, John (Norwich S)
Jones, Barry (East Flint)







Kaufman, Gerald
Murray, Ronald King
Stewart, Rt Hn M. (Fulham)


Kelley, Richard
Newens, Stanley
Stoddart, David


Kerr, Russell
Noble, Mike
Stott, Roger


Kilroy-Silk, Robert
Ogden, Eric
Strang, Gavin


Kinnock, Neil
O'Halloran, Michael
Strauss, Rt Hon G. R.


Lambie, David
Orbach, Maurice
Summerskill, Hon Dr Shirley


Lamborn, Harry
Ovenden, John
Taylor, Mrs Ann (Bolton W)


Lamond, James
Owen, Dr David
Thomas, Jeffrey (Abertillery)


Latham, Arthur (Paddington)
Padley, Walter
Thomas, Mike (Newcastle E)


Leadbitter, Ted
Palmer, Arthur
Thomas, Ron (Bristol NW)


Lever, Rt Hon Harold
Park, George
Thorne, Stan (Preston South)


Lewis, Ron (Carlisle)
Parker, John
Tierney, Sydney


Lipton, Marcus
Parry, Robert
Tinn, James


Litterick, Tom
Pavitt, Laurie
Tomlinson, John


Lomas, Kenneth
Perry, Ernest
Torney, Tom


Loyden, Eddie
Phipps, Dr Colin
Wainwright, Edwin (Dearne V)


Luard, Evan
Prentice, Rt Hon Reg
Walden, Brian (B'ham, L'dyw'd)


Lyon, Alexander (York)
Price, C. (Lewisham W)
Walker, Harold (Doncaster)


Lyons, Edward (Bradford W)
Price, William (Rugby)
Walker, Terry (Kingswood)


McEihone, Frank
Rees, Rt Hon Merlyn (Leeds S)
Ward, Michael


MacFarquhar, Roderick
Richardson, Miss Jo
Watkins, David


McGuire, Michael (Ince)
Roberts, Gwilym (Cannock)
Watkinson, John


Mackenzie, Gregor
Robertson, John (Paisley)
Weetch, Ken


Mackintosh, John P.
Roderick, Caerwyn
Weitzman, David


Maclennan, Robert
Rodgers, George (Chorley)
Wellbeloved, James


McMillan, Tom (Glasgow C)
Rodgers, William (Stockton)
White, Frank R. (Bury)


Madden, Max
Rooker, J. W.
White, James (Pollock)


Magee, Bryan
Ross, Rt Hon W. (Kilmarnock)
Whitehead, Phillip


Mahon, Simon
Rowlands, Ted
Whitlock, William


Marks, Kenneth
Ryman, John
Willey, Rt Hon Frederick


Marquand, David
Sandelson, Neville
Williams, Alan (Swansea W)


Marshall, Dr Edmund (Goole)
Sedgemore, Brian
Williams, Alan Lee (Hornchurch)


Marshall, Jim (Leicester S)
Selby, Harry
Williams, Rt Hon Shirley (Hertford)


Mason, Rt Hon Roy
Shaw, Arnold (Ilford South)
Williams, W. T. (Warrington)


Meacher, Michael
Sheldon, Robert (Ashton-u-Lyne)
Wilson, Alexander (Hamilton)


Mellish, Rt Hon Robert
Shore, Rt Hon Peter
Wilson, Rt Hon H. (Huyton)


Mikardo, Ian
Short, Mrs Renée (Wolv NE)
Wilson, William (Coventry SE)


Millan, Bruce
Silkin, Rt Hon John (Deptford)
Wise, Mrs Audrey


Miller, Dr M. S. (E. Kilbride)
Silkin, Rt Hon S. C. (Dulwich)
Woodall, Alec


Miller, Mrs Millie (Ilford N)
Sillars, James
Woof, Robert


Mitchell, R. C. (Soton, Itchen)
Silverman, Julius
Wrigglesworth, Ian


Molloy, William
Skinner, Dennis
Young, David (Bolton E)


Moonman, Eric
Smith, John (N Lanarkshire)



Morris, Alfred (Wythenshawe)
Snape, Peter
TELLERS FOR THE NOES:


Morris, Charles R. (Openshaw)
Spriggs, Leslie
Miss Betty Boothroyd and


Mulley, Rt Hon Frederick
Stallard, A. W.
Mr. Joseph Harper.

Question accordingly negatived.

[Mr. OSCAR MURTON in the chair]

Mr. Norman Lamont: I beg to move Amendment No. 24, in page 12, line 44, at end insert:
'so that, however, the additional tax payable in that year shall not exceed the amount of relief given,'.
The purpose of the amendment can be explained briefly—in fact, in record time for this Committee. It is to restrict the claw-back for stock relief to the same rate of tax at which the relief was obtained. I mentioned this point earlier.
The principle of stock appreciation relief is the deferment of tax payable for the 1973 accounting period. It is not clear how this is to be dealt with in future, but, as I said earlier, technically there could be a situation in which people, having obtained relief for 1973, might have it clawed back at a higher rate. We have seen the rate of corporation tax rise from 40 per cent. to 52 per cent. I

appreciate that there is a different method of applying corporation tax, but the principle applies and creates anxiety about the future.
If the Chief Secretary could give the copper-bottomed assurance that we seek, everybody would be very happy.

Mr. Parkinson: I support what my hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont) has said. I have in my hand a letter from a company which is in exactly the predicament my hon. Friend outlined. It must decide in the very near future whether to make a claim. Its effective rate was 46 per cent. for the relevant accounting period. The rate is at present 52 per cent. If the rate rises again, the company might be faced with a claw-back greater than the relief it has had.
The Chief Secretary could set the minds of many people at rest if he would give an assurance that in no circumstances will the Government take back more than the


relief they grant. Although he has not been able to accept some of the very sensible amendments which have been moved, I hope that in this instance, even if he cannot acept the amendment, he will do the next best thing and give us the assurance we seek.

Mr. Dodsworth: I support the amendment. It would be entirely consistent with the Chief Secretary's earlier remarks for him to accept the amendment. It would ensure that there was no diminution of the cash flow position by an accident of drafting of the legislation beyond its original intention. It would make clear that it is not the intention to penalise people for a deferment of relief in this form. I hope that the Chief Secretary will be able to accept the amendment.

Mr. Joel Barnett: I hope that nothing I have said has resulted in the hon. Member for Kingston-upon-Thames (Mr. Lamont) being moved so rapidly from the Front Bench to the back benches. I hope that this has not arisen because I commended him on the excellent way in which he moved the previous amendment.
The amendment seeks to ensure that the tax saved this year is not exceeded by additional tax next year. I take the point entirely. The hon. Gentleman said that there has been an increase in the rate already from 40 per cent. to 52 per cent. He knows that that was none of my doing. That was a corporation tax system which I did not particularly want.
I take the point made by the hon. Member for Hertfordshire, South (Mr. Parkinson). We have had much debate on whether the relief will be clawed back. I have not been able to tell hon. Members that in all circumstances the relief will not be clawed back, for the reasons which I have given, and I do not think there is any need for me to go over them again. In most cases, however, the relief certainly will not be clawed back. Indeed, the hon. Member for Kingston-upon-Thames asked me for—to use his phrase—"a copper-bottomed guarantee". Well, my right hon. Friend the Chancellor gave a bankable guarantee, and I am sure that Tory Members will be aware of that phrase only too well. It was used perhaps in less good circumstances.
Nevertheless, in this instance we have made absolutely clear that there is no question of our not continuing the relief

in the spring Bill. That is why I am afraid that once again I have to resist the amendment, as I am sure the hon. Gentleman appreciates, but I hope that because I have been able to give him, if not a copper-bottomed assurance or guarantee, a bankable one, he will not feel it necessary to press the amendment.

Amendment negatived.

Mr. Norman Lamont: I beg to move Amendment No. 25, in page 12, line 44, at end insert:
'(c) Where as a result of this section the advance corporation tax set-off exceeds the corporation tax due, the balance shall be repaid'.

The Deputy-Chairman: With this we may take the following amendments:
No. 26, in page 12, line 44, at end insert:
'(c) Nothing in the operation of this section shall affect the amount of advance corporation tax set-off under section 85(3) of the Finance Act 1972'.
No. 76, in page 14, line 32, at end add:
'(11) Relief under this section shall be ignored for the purposes of the transitional provisions set out in Schedule 23 to the Finance Act 1972.'.

Mr. Lamont: The purpose of these amendments can be stated very quickly. They seek a modest extension of the relief. Perhaps "extension" is not the correct word. It is merely to prevent a restriction in certain circumstances.
The purpose of Amendment No. 25 is to give relief against ACT where there is insufficient mainstream corporation tax liability to absorb the whole of the relief. If the object of what the Government are doing is to help the liquidity of companies, that relief ought also to be available against ACT, all the more so since the Government, for political reasons which have emerged very clearly in this debate, have decided not to cancel or repay ACT.
If I may try to read the crystal ball—in other words, the Chief Secretary's mind—the right hon. Gentleman may tell me that ACT paid by companies forms the tax credit of the shareholders and that the Revenue will, therefore, be issuing tax credits without actually receiving tax from the company. My professional advisers say that the position would be equalised when the mainstream corporation tax


became due or, indeed, when the deferred increase was paid later, as the Chief Secretary has not been able to convince me that it will not be paid. Amendment No. 25, therefore, is simply a test of the Government's good intentions to make sure that the liquidity position of companies is eased.
The purpose of Amendment No. 26 is to avoid a reduction in the benefit obtained from the stock relief because of the ACT set-off rules. I believe that it is Section 85 of the Finance Act 1972 which deals with the setting off of ACT against the liability to corporation tax. Subsection (3) provides for the repayment of ACT where there is insufficient mainstream corporation tax liability to require payment of ACT. There the relief is limited to 33 per cent.—the current rate of assessable income—and any balance of ACT can be carried back or any remainder can be carried forward.
The purpose of the amendment is to avoid a reduction in the benefit of stock relief, particularly where one might get a reduction of the company's income and this would lead to a restriction of the ACT set-off. In that situation, one might find that the company was not able to get relief by carrying ACT back because of losses in earlier years. Therefore, the effect of the amendment would be to leave the ACT exactly where it was despite any reduction of income.
I can see from the benevolent smile on the Financial Secretary's face that at long last I have achieved success.

6.45 p.m.

Mr. Joel Barnett: I regret to have to tell the hon. Gentleman that I was smiling at his once again telling me how I am going to reply to the amendment. As he knows, he has this delightful way of telling me how I am going to reply. It saves me a lot of trouble very often because he obviously knows the answer.
Amendment No. 25, as the hon. Gentleman says, would allow ACT to be repaid to a company if it could not be set off against mainstream tax because the tax had been reduced by the stock relief. The amendment is unacceptable because of the whole system of advance corporation tax. The hon. Gentleman touched on it, and I will deal with that point.
On the basis of this proposal in Amendment No. 25, the exempt shareholder could claim from the Revenue, where it was entitled to repayment of the tax, payment of tax which had already been repaid to the company. The hon. Gentleman meets that argument by saying that the company may or will sometimes pay this mainstream tax. But it may never do so. It depends on what happens in the future—and who can foresee the future? I am sure that some of us might like to do so, but I should not like to foresee the situation in which a company had had this tax relief in respect of ACT and had had relief which it should not have had, in view of the way in which the present corporation tax system was devised by Conservative hon. Members.
Apart from that, I am advised that the drafting of the amendment is not altogether clear, although I am happy to tell the hon. Gentleman that it is clear to me what he wants. However, if it was left as it is the drafting would not be altogether clear, although that is not the reason why I am resisting the amendment. The general rule is that ACT paid in a year is to be regarded as an instalment of the mainstream tax. Clearly, if there is no mainstream tax it would be quite wrong to give the ACT and, therefore, relief to a shareholder in certain circumstances and then not to be able to get it back from the company in its mainstream tax.
That is the major reason why I do not feel able to accept the amendment. Indeed, I am advised that the inviolability of the ACT is a cardinal feature of the imputation system. At least, this is what the previous Government and, indeed, the Select Committee thought it to be. As we still have the imputation system in our corporation tax, I am not able to accept Amendment No. 25.
Amendment No. 26 is altogether another matter. The hon. Gentleman almost wants cream on the jam here. What he is suggesting is that when a company pays dividends in the financial year 1974 or 1975 to such an extent that the ACT exceeds the amount which can be set off against the year's mainstream bill, it should be allowed to set off the excess against the bill for the year 1973 to the same extent as if the profits had never


been reduced by the stock relief. I cannot accept Amendment No. 26 for the same reason as I cannot accept Amendment No. 25.
Amendment No. 76 seeks to provide that the restriction to be applied, if certain conditions are not met, to the amount of ACT set off in the period of transition from the old to the new systems of company taxation in April 1972, should be made only to the same extent as if the corporation tax liability had not been reduced by relief under Clause 16. We cannot accept that companies can have their corporation tax bill cut, often by substantial amounts, and continue to enjoy the same treatment in other fields to which they have previously been entitled. That is why I do not feel able to accept Amendment No. 76.
I hope, therefore, that the Committee will agree that these three amendments should not be accepted.

Amendment negatived.

Mr. Peter Hordern: I beg to move Amendment No. 81, in page 13, line 3, at end insert:
'(5) Where the company is entitled to relief under this section and to set off a loss against the profits of a preceding accounting period by virtue of section 177 of the Taxes Act 1970 it shall be entitled to group relief by virtue of sections 258–264 of that Act and to set off the amount of its loss against the profits of another company which is a member of the same group, and for this purpose, the corresponding accounting period for the purposes of section 259 of the Taxes Act shall be the accounting period of the claimant company which corresponds to such preceding accounting period of the surrendering company'.

The Deputy Chairman: With this we are to take Amendment No. 78 in page 14, line 32, at end add:
'(11) The relief under this section shall not be restricted by subsection 5(a) for a company which is a member of a group where the closing stock value for the group in aggregate is not less than £25,000.'

Mr. Hordern: These amendments are concerned with group relief for the allowance of stock appreciation. Amendment No. 81 is concerned with the position of large groups of companies. We can take as an example the position which occurs in two different groups of companies. Let us assume that the first group of companies has made no effort

during the last few years to engage in any heavy capital expenditure except, possibly, to replace existing plant and machinery. It has shown no interest in expansion but because of the level of inflation its profits have grown. Its stock, if it is typical of the level of industry as a whole, probably represents about two and a half times its annual pre-tax profits.
With inflation running at 20 per cent., about 50 per cent. of the group's pre-tax profits arises from stock appreciation. This group will benefit considerably from the allowances under the clause. The company which has made very little effort to improve its position in the last few years, which has made practically no effort to increase its capital expenditure in spite of the urgings and exhortations of successive Governments, will benefit.
The second group of companies is quite separate. For the purpose of the amendment let us assume that it has an accounting year ending on 30th September 1973. This group of companies has been bent on expansion. It has ploughed back large sums in new plant and machinery over several years. It has probably borrowed extensively from the market and the banks for major capital investment programmes, and in doing so it has followed the advice of successive Governments. It might have borrowed extensively when the banks were urged to lend to industry at rates that were far more favourable than today's. Such a group would have been caught by the rise in interest rates and inflation generally.
Therefore, the groups which responded to the exhortations of successive Governments and invested have come out rather worse in the present circumstances of inflation than companies which did not invest heavily in recent times. This is a lesson we have to learn. The group which is bent on expansion has been able to offset the increases in capital expenditure against group profits so that the taxable profits to the year ending September 1973 have been low. However, in the previous accounting year to September 1972 the group might have had substantial taxable profits arising from companies within the group, but those companies might not necessarily have been the ones in which the stock appreciated in the year ending September 1973.
The amendment seeks to provide power to offset the stock appreciation provisions against the profits of companies within the same group whose stocks did not appreciate during 1973. The relief is of the same order as is already allowed for corporation tax purposes in the group relief system. Surely it cannot be the Government's intention to penalise groups of companies which have undertaken large capital investment programmes and which have companies within the group against which stock appreciation provisions can be offset.
The relief cannot be arbitrarily limited to the same companies within the group when the Chancellor's clearly stated intention was to help liquidty. In his Budget Statement he said:
I am persuaded that industry needs a substantial immediate improvement of its liquidity through the deferment of tax on that part of the profit which corresponds to the abnormal increase in the value of stock and work in progress."—[Official Report, 12th November 1974; Vol. 881, c. 264.]
However, in a group of companies such as I have just described in which there has been a measurable degree of stock appreciation because of the incidence of capital investment there might be no profits against which these stock appreciation allowances should be offset. The Chief Secretary must be aware of the consequences of not allowing the kind of relief to which I have referred.
If, for example, such a group is now in the middle of a major investment programme, I do not see what possible incentive there can be for it to continue that programme if profits will not be available for stock appreciation relief because of the extent of the capital allowances that will be used in future years.
The Government must be aware of the continuing deterioration of the company sector. In its last review the National Institute said that in the first half of 1973 profits net of stock appreciation fell to only 5½ per cent. of the gross domestic product compared with nearly 15 per cent. in 1963. At the same time the proportion of stock appreciation in gross profits rose from 3½ per cent. in 1963 to more than 60 per cent. in the most recent period. With inflation now proceeding at 20 per cent. this position is becoming increasingly serious.
It is this situation which the clause belatedly seeks to alleviate. However, it helps most those companies which have no intention of increasing their investment or modernising their plant or equipment. It helps the slothful and inert companies and does nothing for those trying to become more efficient through capital investment. "Strength through stagnation" seems to be the Government's motto. The amendment does not seek to give special help to companies which are investing more; it simply spreads the relief for capital appreciation through the existing group of companies.
A substantial proportion of our capital investment comes from large groups of companies. Goodness knows, there is not much incentive for them to invest at present, but the effect of the clause is to provide them with a positive incentive to cancel or delay their investment plans and to take the stock appreciation assistance instead. That is why the clearing banks are now so full of money. It is because companies have no incentive to borrow in order to invest, with inflation running at its present rate.
7.0 p.m.
In consequence, the proposals in the clause are only likely to extend this position indefinitely, unless there is at least allowance for group relief within a group of companies, so that where there are taxable profits against which this relief can be offset that group of companies can carry on with its investment programme and at the same time achieve the improvement in liquidity which the Chancellor set out to achieve by the clause.
Therefore, I hope that the Chief Secretary will take the amendment seriously. I know he said earlier that the clause was by no means the last that the Committee would hear about the Government's efforts to improve companies' liquidity. But if ever there is a case for selection it is the case of those companies where there is a measure of relief available within the group. Those companies should benefit by being able to proceed with their capital investment programme, something which is so much required for the country's economic position.

Mr. Joel Barnett: The amendment proposes an extension to the existing rules of group relief for Clause 16 purposes.


The question of group relief can be somewhat complicated for accountants and everyone else concerned. The amendment seeks to widen the scope of group relief in the context of the clause—that is, the stock relief. My right hon. Friend the Chancellor of the Exchequer made absolutely clear when he explained the purpose of the relief under the clause that it was to give relief for liquidity this winter. The amendment goes much further.
I agree with the hon. Member for Horsham and Crawley (Mr. Hordern) that in many cases the stock relief will increase an existing loss or convert a profit into a loss, and will, therefore, not be able to be used. But in those cases the companies will have all the normal facilities for setting off the loss. It will be possible to carry the loss backwards a year against the profits of the same trade or carry it forward indefinitely against similar profits. They can set the loss off against other profits of the same accounting period. They can surrender the loss to a fellow member of a group for use against the fellow member's profit for the corresponding accounting period.
But what the hon. Gentleman seeks to do in the amendment is to extend the rules of group relief for the purpose of stock relief only. A company with a stock relief loss would be able to surrender it to another group member for use against profits of that member's preceding accounting year. The hon. Gentleman is seeking to go a little wide. Apart from any other arguments, the amendment would be a dangerous precedent for the further widening of the whole question of group relief which is already a tricky area. I doubt whether the clause is the place we should choose to consider amendments to the whole area of group relief.
Although the amendment would not be difficult to administer, it would add to the complications because of the need for consultation between tax districts. The companies in a group can be scattered among a number of districts. Any such complication is unjustified when the relief given by way of a repayment of tax, or reduction of the tax payable, was intended to be for this winter.
We have gone pretty far with the clause. There will be new relief in the spring Bill, and I do not think that it is unreasonable now to ask that this matter be left

until we discuss the extension of the relief in the spring.

Mr. Keith Stainton: I am not particularly attracted by the amendment. One wonders just how far bank finance should be used in a large group to finance substantial capital expenditure, and on what scale it happens. We should have to look at the structure of many companies to know the answer. This is a fundamental matter, because otherwise the expenditure would be funded through shareholders, in which case the argument would not arise, or at a substantially lower rate of interest than the current rate, if we are talking about the 1973 tax year.
Further, I was not particularly attracted by the argument that the benefit of the stock inflation relief would be largely attributable to the slothful companies. That is the inverse of the argument that the go-ahead companies are necessarily those involved in a high level of capital expenditure at present. Capital expenditure is not necessarily a continuous and on-going process. There could have been large capital expenditure, say, five years ago which is coming on stream now, without current expenditure being incurred. I would not condemn a company in that position as a slothful company.
The irony of my hon. Friend's argument is that presumably a group will be taking advantage of slothful members of the group, in so far as those members have stock inflation values to offset, for the benefit of companies in the group that cannot otherwise benefit on account of capital expenditure and capital allowances.

Mr. Hordern: The way in which a company or group of companies may have borrowed for the purpose of capital investment has nothing to do with the argument. Many groups of companies have borrowed extensively under persuasion by both Governments. That has nothing to do with the amendment, but I was pointing out that companies which have used various methods—cash flow or anything else—to invest in new plant and machinery will not be able to benefit by the stock appreciation provisions, because of the use of capital allowances against taxable profits. Whatever my hon. Friend may say about such companies, whether or not they are more efficient because


they have invested more, they should not be put at a disadvantage because they have put new investment into plant and machinery compared with those groups which have not invested at all in the past few years.

Mr. Stainton: I take that point, but to say that a company is slothful because it is not currently embarked upon a capital expenditure programme could be highly distorting in the appraisal of a particular industrial situation.
Although I am not attracted by the amendment, I am far from convinced that the Chief Secretary has given an adequate answer. He said that the loss provisions were entirely adequate, that one could job backwards, or set the situation against the current year's profits, or take it forward. He then rapidly passed over the matter, simply saying that group relief is a complex problem and asking "Why add to the complexities of life?" That is much less than an answer to my hon. Friend. Despite my reservations, which I think are reservations of emphasis rather than anything else, I must insist that we have a better and more responsible reply from the Treasury Bench.

Mr. Hordern: Despite the differences between my hon. Friend and myself—if they arise at all, it is in the interpretation of what is or what is not a slothful group of companies and not on the merits of capital investment—I believe that my right hon. and hon. Friends are united in agreeing that the provisions of Clause 16 do not apply to groups of companies which have undertaken considerable capital investment in recent years.
We are not asking for any special relief for companies which have undertaken large capital investment programmes merely for the sake of doing so. We are saying that it is perfectly permissible

Division No. 65.]
AYES
[7.15 p.m.


Adley, Robert
Benyon, W.
Buchanan-Smith, Alick


Aitken, Jonathan
Berry, Hon Anthony
Buck, Antony


Alison, Michael
Biffen, John
Budgen, Nick


Amery, Rt Hon Julian
Biggs-Davison, John
Bulmer, Esmond


Arnold, Tom
Blaker, Peter
Burden, F. A.


Atkins, Rt Hon H. (Spelthorne)
Body, Richard
Carr, Rt Hon Robert


Awdry, Daniel
Boscawen, Hon Robert
Chalker, Mrs Lynda


Bain, Mrs Margaret
Bowden, A. (Brighton, Kemptown)
Channon, Paul


Baker, Kenneth
Boyson, Dr Rhodes (Brent)
Churchill, W. S.


Banks, Robert
Braine, Sir Bernard
Clark, Alan (Plymouth, Sutton)


Beith, A. J.
Brittan, Leon
Cockcroft, John


Bell, Ronald
Brotherton, Michael
Cooke, Robert (Bristol W)


Bennett, Dr Reginald (Fareham)
Brown, Sir Edward (Bath)
Cope, John

for the Clause 16 provisions to be related to groups of companies which have taxable profits in a preceding year and that if they arise in companies which are in a different position from those in which capital investment has taken place they should nevertheless be allowed relief under the group system in a similar way to the relief which is allowed already for corporation tax.

For the Chief Secretary to say that the whole matter is complicated, that the Revenue would have to deal with different tax districts and that administrative complications would arise is no answer to the problem. The plain fact is that the Chief Secretary and his hon. Friends do not appear to understand the damage they are inflicting on industry. They inflicted damage in the March Budget and this seems to be a belated effort to improve the liquidity of certain companies. The manner of approach which they have chosen is not efficient and it will not do what is required.

The total effect of the provisions that we are discussing will be to undermine the low propensity of companies to invest in new plant and machinery. If there is one requirement at the moment, it is to provide a stimulus for companies to invest more in plant and machinery. It is all very well for the Chief Secretary to frown. He should be alarmed for the sake of the country and the economy by the way in which bank deposits are rising and by the way in which companies are not investing their capital.

For those and many other reasons, I invite my right hon. and hon. Friends to join me in the Lobby in support of the amendment.

Question put, That the amendment be made:—

The Committee divided: Ayes 245, Noes 262.

Cormack, Patrick
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Rawlinson, Rt Hon Sir Peter


Corrie, John
Jessel, Toby
Rees, Peter (Dover &amp; Deal)


Costain, A. P.
Johnson Smith, G. (E Grinstead)
Rees-Davies, W. R.


Crawford, Douglas
Jones, Arthur (Daventry)
Reid, George


Crouch, David
Jopling, Michael
Renton, Rt Hon Sir D. (Hunts)


Crowder, F. P.
Joseph, Rt Hon Sir Keith
Renton, Tim (Mid-Sussex)


Davies, Rt Hon J. (Knutsford)
Kaberry, Sir Donald
Rhys Williams, Sir Brandon


Dean, Paul (N Somerset)
Kellett-Bowman, Mrs Elaine
Ridley, Hon Nicholas


Dodsworth, Geoffrey
Kershaw, Anthony
Ridsdale, Julian


Douglas-Hamilton, Lord James
Kimball, Marcus
Rifkind, Malcolm


Drayson, Burnaby
King, Evelyn (South Dorset)
Roberts, Michael (Cardiff NW)


Dunlop, John
King, Tom (Bridgwater)
Roberts, Wyn (Conway)


Durant, Tony
Knight, Mrs Jill
Ross, William (Londonderry)


Dykes, Hugh
Knox, David
Rossi, Hugh (Hornsey)


Eden, Rt Hon Sir John
Lamont, Norman
Rost, Peter (SE Derbyshire)


Edwards, Nicholas (Pembroke)
Lane, David
Sainsbury, Tim


Elliott, Sir William
Langford-Holt, Sir John
St. John-Stevas, Norman


Emery, Peter
Latham, Michael (Melton)
Scott, Nicholas


Ewing, Mrs Winifred (Moray)
Lawrence, Ivan
Shaw, Giles (Pudsey)


Eyre, Reginald
Lawson, Nigel
Shaw, Michael (Scarborough)


Fairbairn, Nicholas
Le Marchant, Spencer
Shelton, William (Streatham)


Fairgrieve, Russell
Lewis, Kenneth (Rutland)
Shepherd, Colin


Fell, Anthony
Lloyd, Ian
Silvester, Fred


Finsberg, Geoffrey
Loveridge, John
Sims, Roger


Fisher, Sir Nigel
Luce, Richard
Sinclair, Sir George


Fookes, Miss Janet
MacCormick, Iain
Skeet, T. H. H.


Fowler, Norman (Sutton C'f'd)
McCrindle, Robert
Smith, Cyril (Rochdale)


Fraser, Rt Hon H. (Stafford &amp; St)
Macfarlane, Neil
Smith, Dudley (Warwick)


Freud Clement
MacGregor, John
Spence, John


Fry, Peter
Macmillan, Rt Hon M. (Farnham)
Spicer, Jim (W Dorset)


Galbraith, Hon T. G. D.
McNair-Wilson, M. (Newbury)
Spicer, Michael (S. Worcester)


Gardiner, George (Reigate)
McNair-Wilson, P. (New Forest)
Sproat, Iain


Gardner, Edward (S Fylde)
Madel, David
Stainton, Keith


Gilmour, Sir John (East Fife)
Marten, Neil
Stanbrook, Ivor


Glyn, Dr Alan
Mates, Michael
Stanley, John


Goodhart, Philip
Mather, Carol
Stewart, Donald (Western Isles)


Goodhew, Victor
Maude, Angus
Stewart, Ian (Hitchin)


Goodlad, Alastair
Mawby, Ray
Stokes, John


Gorst, John
Maxwell-Hyslop, Robin
Taylor, R. (Croydon NW)


Gow, Ian (Eastbourne)
Mayhew, Patrick
Taylor, Teddy (Cathcart)


Gower, Sir Raymond (Barry)
Meyer, Sir Anthony
Tebbit, Norman


Grant, Anthony (Harrow C)
Miscampbell, Norman
Temple-Morris, Peter


Gray, Hamish
Mitchell, David (Basingstoke)
Thatcher, Rt Hon Margaret


Griffiths Eldon
Moate, Roger
Thomas, Dafydd (Merioneth)


Grimond, Rt Hon J.
Monro, Hector
Thomas, Rt Hon P. (Hendon S)


Grist, Ian
Moore, John (Croydon C)
Thompson, George


Grylls, Michael
More, Jasper (Ludlow)
Trotter, Neville


Hall, Sir John
Morris, Michael (Northampton S)
Tugendhat, Christopher


Hall-Davis, A. G. F.
Morrison, Charles (Devizes)
van Straubenzee, W. R.


Hamilton, Michael (Salisbury)
Morrison, Peter (Chester)
Viggers, Peter


Hampson, Dr Keith
Mudd, David
Wakeham, John


Hannam, John
Neave, Airey
Walder, David (Clitheroe)


Hastings, Stephen
Neubert, Michael
Walker, Rt Hon P. (Worcester)


Havers, Sir Michael
Newton, Tony
Walker-Smith, Rt Hon Sir Derek


Hawkins, Paul
Nott, John
Walters, Dennis


Hayhoe, Barney
Onslow, Cranley
Watt, Hamish


Heath, Rt Hon Edward
Oppenheim, Mrs Sally
Weatherill, Bernard


Henderson, Douglas
Page, Rt Hon R. Graham (Crosby)
Wells, John


Heseltine, Michael
Pardoe, John
Welsh, Andrew


Hicks, Robert
Parkinson, Cecil
Whitelaw, Rt Hon William


Higgins, Terence L.
Pattie, Geoffrey
Wiggin, Jerry


Holland, Philip
Penhaligon, David
Wigley, Dafydd


Hooson, Emlyn
Percival, Ian
Wilson, Gordon (Dundee E)


Hordern, Peter
Peyton, Rt Hon John
Winterton, Nicholas


Howell, David (Guildford)
Pink, R. Bonner
Young, Sir G. (Ealing, Acton)


Howell Ralph (North Norfolk)
Powell, Rt Hon J. Enoch
Younger, Hon George


Howells, Geraint (Cardigan)
Price, David (Eastleigh)



Hurd, Douglas
Prior, Rt Hon James
TELLERS FOR THE AYES:


Hutchison, Michael Clark
Raison, Timothy
Mr. John Stradling Thomas and


James, David
Rathbone, Tim
Mr. Adam Butler.




NOES


Abse, Leo
Barnett, Rt Hon Joel
Bottomley, Rt Hon Arthur


Allaun, Frank
Bates, Alf
Boyden, James (Bish Auck)


Anderson, Donald
Bean, R. E.
Bradley, Tom


Archer, Peter
Benn, Rt Hon Anthony Wedgwood
Bray, Dr Jeremy


Armstrong, Ernest
Bennett, Andrew (Stockport N)
Brown, Hugh D. (Provan)


Ashley, Jack
Bidwell, Sydney
Buchan, Norman


Ashton, Joe
Blenkinsop, Arthur
Buchanan, Richard


Atkins, Ronald (Preston N)
Boardman, H.
Butler, Mrs Joyce (Wood Green)


Atkinson, Norman
Booth, Albert
Callaghan, Rt Hon J. (Cardiff SE)


Barnett, Guy (Greenwich)
Boothroyd, Miss Betty
Callaghan, Jim (Middleton &amp; P)







Campbell, Ian
Hooley, Frank
Park, George


Canavan, Dennis
Horam, John
Parker, John


Cant, R. B.
Howell, Denis (B'ham, Sm H)
Parry, Robert


Carmichael, Neil
Hoyle, Douglas (Nelson)
Pavitt, Laurie


Carter, Ray
Huckfield, Les
Perry, Ernest


Carter-Jones, Lewis
Hughes, Rt Hon C. (Anglesey)
Phipps, Dr Colin


Cartwright, John
Hughes, Mark (Durham)
Prentice, Rt Hon Reg


Clemitson, Ivor
Hughes, Robert (Aberdeen N)
Price, C. (Lewisham W)


Cocks, Michael (Bristol S)
Hughes, Roy (Newport)
Price, William (Rugby)


Coleman, Donald
Hunter, Adam
Rees, Rt Hon Merlyn (Leeds S)


Colquhoun, Mrs Maureen
Irvine, Rt Hon Sir A. (Edge Hill)
Richardson, Miss Jo


Conlan, Bernard
Irving, Rt Hon S. (Dartford)
Roberts, Gwilym (Cannock)


Cook, Robin F. (Edin C)
Jackson, Colin (Brighouse)
Robertson, John (Paisley)


Corbett, Robin
Jackson, Miss M. (Lincoln)
Roderick, Caerwyn


Craigen, J. M. (Maryhill)
Janner, Greville
Rodgers, George (Chorley)


Cronin, John
Jay, Rt Hon Douglas
Rodgers, William (Stockton)


Crosland, Rt Hon Anthony
Jeger, Mrs Lena
Rooker, J. W.


Cryer, Bob
Jenkins, Rt Hon Roy (Stechford)
Ross, Rt Hon W. (Kilmarnock)


Cunningham, G. (Islington S)
John, Brynmor
Rowlands, Ted


Cunningham, D. J. (Whiteh)
Johnson, James (Hull West)
Ryman, John


Dalyell, Tam
Jones, Alec (Rhondda)
Sandelson, Neville


Davidson, Arthur
Jones, Barry (East Flint)
Sedgemore, Brian


Davies, Bryan (Enfield N)
Judd, Frank
Selby, Harry


Davies, Denzil (Llanelli)
Kaufman, Gerald
Shaw, Arnold (Ilford South)


Davies, Ifor (Gower)
Kelley, Richard
Sheldon, Robert (Ashton-u-Lyne)


Davis, Clinton (Hackney C)
Kerr, Russell
Shore, Rt Hon Peter


Deakins, Eric
Kilroy-Silk, Robert
Short, Rt Hon E. (Newcasle C)


Dean, Joseph (Leeds West)
Kinnock, Neil
Short, Mrs Renée (Wolv NE)


de Freitas, Rt Hon Sir Geoffrey
Lambie, David
Silkin, Rt Hon S. C. (Dulwich)


Delargy, Hugh
Lamborn, Harry
Sillars, James


Dell, Rt Hon Edmund
Lamond, James
Silverman, Julius


Dempsey James
Latham, Arthur (Paddington)
Skinner, Dennis


Doig, Peter
Leadbitter, Ted
Smith, John (N Lanarkshire)


Dormand, J. D.
Lee, John
Snape, Peter


Douglas-Mann, Bruce
Lever, Rt Hon Harold
Spriggs, Leslie


Duffy, A. E. P.
Lewis, Ron (Carlisle)
Stallard, A. W.


Dunn, James A.
Litterick, Tom
Stewart, Rt Hn M. (Fulham)


Dunnett, Jack
Lomas, Kenneth
Stoddart, David


Dunwoody, Mrs. Gwyneth
Loyden, Eddie
Stott, Roger


Edelman, Maurice
Luard, Evan
Strauss, Rt Hon G. R.


Edge, Geoff
Lyon, Alexander (York)
Summerskill, Hon Dr Shirley


Edwards, Robert (Wolv SE)
Lyons, Edward (Bradford W)
Taylor, Mrs Ann (Bolton W)


Ellis, John (Brigg &amp; Scun)
McElhone, Frank
Thomas, Jeffrey (Abertillery)


Ellis, Tom (Wrexham)
MacFarquhar, Roderick
Thomas, Mike (Newcastle E)


English, Michael
McGuire, Michael (Ince)
Thomas, Ron (Bristol NW)


Evans, Ioan (Aberdare)
Mackenzie, Gregor
Thorne, Stan (Preston South)


Evans, John (Newton)
Mackintosh, John P.
Tierney, Sydney


Ewing Harry (Stirling)
Maclennan, Robert
Tinn, James


Fernyhough, Rt Hon E.
McMillan, Tom (Glasgow C)
Tomlinson, John


Flannery, Martin
Madden, Max
Wainwright, Edwin (Dearne V)


Fletcher, Ted (Darlington)
Magee, Bryan
Walker, Harold (Doncaster)


Foot, Rt Hon Michael
Mahon, Simon
Walker, Terry (Kingswood)


Ford, Ben
Marks, Kenneth
Ward, Michael


Forrester, John
Marquand, David
Watkins, David


Fowler, Gerald (The Wrekin)
Marshall, Dr Edmund (Goole)
Watkinson, John


Fraser, John (Lambeth, N'w'd)
Marshall, Jim (Leicester S)
Weetch, Ken


Freeson, Reginald
Mason, Rt Hon Roy
Weitzman, David


Garrett, John (Norwich S)
Meacher, Michael
Wellbeloved, James


Garrett, W. E. (Wallsend)
Mellish, Rt Hon Robert
White, Frank R. (Bury)


George, Bruce
Mikardo, Ian
White, James (Pollock)


Gilbert, Dr John
Millan, Bruce
Whitehead, Phillip


Ginsburg, David
Miller, Dr M. S. (E. Kilbride)
Whitlock, William


Golding John
Miller, Mrs Millie (Ilford N)
Willey, Rt Hon Frederick


Gould, Bryan
Mitchell, R. C. (Soton, Itchen)
Williams, Alan (Swansea W)


Gourlay, Harry
Molloy, William
Williams, Alan Lee (Hornchurch)


Graham, Ted
Moonman, Eric
Williams, Rt Hon Shirley (Hertford)


Grocott, Bruce
Morris, Alfred (Wythenshawe)
Williams, W. T. (Warrington)


Hamilton, James (Bothwell)
Morris, Charles R. (Openshaw)
Wilson, Alexander (Hamilton)


Hamilton, W. W. (Central Fife)
Mulley, Rt Hon Frederick
Wilson, William (Coventry SE)


Hamling, William
Murray, Ronald King
Wise, Mrs Audrey


Hardy, Peter
Newens, Stanley
Woodall, Alec


Harper, Joseph
Noble, Mike
Woof, Robert


Harrison, Walter (Wakefield)
Ogden, Eric
Wrigglesworth, Ian


Hart, Rt Hon Judith
O'Halloran, Michael
Young, David (Bolton E)


Hattersley, Rt Hon Roy
Orbach, Maurice



Hatton, Frank
Ovenden, John
TELLERS FOR THE NOES:


Hayman, Mrs Helene
Owen, Dr David
Mr. Thomas Cox and


Healey, Rt Hon Denis
Padley, Walter
Mr. Walter Johnson.


Heffer Eric S.
Palmer, Arthur

Question accordingly negatived.

Mr. David Mitchell: I beg to move Amendment No. 29, in page 13, line 6, leave out paragraph (a).

The Deputy-Chairman: With this we may discuss Amendment No. 72, in page 13, line 6, leave out paragraph (a) and insert:
'(a) the amount of the relief resulting from the application of this section is in excess of £500; and'.

Mr. Mitchell: Amendment No. 72 is a fall-back proposition if the Government do not feel able to accept Amendment No. 29 which we regard as being reasonable. Under Amendment No. 72, £500 would be the amount of stock which would not be taken into account. It would, therefore, take out all the tiddlers.
Amendment No. 29 is one of the most significant amendments which the Committee has had to discuss today. The Chancellor made the case for the remissions of corporation tax very clearly in his Budget Statement when he said:
What happens in times of inflation is that the cost value of the closing stock becomes much larger than that of the opening stock because the stock is replaced at higher prices. This causes an acute liquidity problem, a shortage of cash for the payment of wages, materials and other expenses."—[Official Report, 12th November 1974; Vol. 881, c. 264.]
That situation made necessary the remissions in corporation tax announced in the Autumn Budget, partly doing away with the savage increases in corporation tax which the Chancellor imposed in the spring Budget.
The penitent is always welcome. We would not wish to embarrass him in his penitence but we simply say that the idea is wholly to be recommended. We have to consider to which sector of the business community this problem applies most. I suggest that by definition it applies in its most acute form to the smaller businesses. These are the businesses where there is no outside available finance, the businesses which are financed out of plough-back of profits. This plough-back is squeezed by rising costs and wages on one side and on the other side by pegged prices. Availability of cash has therefore been limited.
The Government recognise that because before the last General Election, in August 1974, they published a White Paper "The Regeneration of British Industry" in which they said:

in times of economic difficulty it is often the small businessman, dependent to a great extent on personal wealth as a source of finance, who suffers the greatest hardship. The Government are therefore reviewing the problems of small businesses and will put forward separate proposals to cater for their special needs.
The Committee will realise that this is the first opportunity the Government have had of showing how they intend to cater for those special needs. How do they do it? Pious words before the election are one thing, but actions speak louder.
This is the only part of the company sector which is not to get the benefit of the remissions of corporation tax following on increases in the value of stock. These are the companies whose stock is £25,000 or less. In effect, the small businesses are to be left without any assistance at all. I am glad that we have the Under-Secretary of State for Industry who has responsibility for small businesses sitting on the Government Front Bench with a slightly worried look on his face. While we welcome his presence we would have welcomed far more some action by him to prevent small businesses being singled out in this way.
There is another group which will not benefit—the self-employed. They have already been picked out by the Secretary of State for Social Services for a private clobbering through the unfair increase in national insurance contributions which comes into effect in April. Insult is added to injury when they too do not benefit under the clause. There is an overwhelmingly strong case for saying that of all the companies that should have benefited the ones that need it most are excluded from benefit.
7.30 p.m.
One asks why that is. I have made inquiries, and I know that the brief of the Minister who is to reply will say "Administrative difficulties, reject amendment" or words to that effect. Does that hold water? The revision of accounts is done by qualified accountants and, as we are dealing with companies, it has to be done by their auditors. There will be, in the impartial position between the company and the Inland Revenue which is held by auditors, a qualified body of men preparing the accounts and making a mathematical calculation.
That calculation is not a very difficult one. Before coming into the Chamber


I tried to do it myself and I found it to be so simple that even I could do it. One takes the stock at the beginning of the year and the stock at the end of the year and subtracts one from the other. One then reduces the figure by 10 per cent. of the trading profit, and the result is the reduction in taxable profit which comes into the calculation.
I picked a company at random from "Moodies" in the Library. These are the figures for the British Printing Corporation. Opening stock £11,159,000, closing stock £13,957,000—a difference of £2,798,000. We take away 10 per cent. of the trading profit as defined in the Bill, £742,500, and we are left with £2,055,500. So the profit for the year is reduced by that amount before calculating the 52 per cent. corporation tax, and there is a remission of £1,068,860. It took me about three minutes to do that, but the Treasury is allowed to use electronic calculators which will get through the calculation much more quickly than I did.
I am grateful to my hon. Friend the Member for Gloucestershire, South (Mr. Cope), who reminded me that a prominent firm of city accountants on the morning after the Budget rammed through its calculator all the accounts of several hundred businesses for which it had responsibility. By midday on the day after the Budget the remissions for each company had been produced. If the calculations can be done in that way, the Government's case that they cannot do it does not stand up.
Apart from that, there are the Chancellor's words in his Budget Statement:
This problem has become so urgent during the present year that I am persuaded that industry needs a substantial immediate improvement of its liquidity".—[Official Report,, 12th November 1974; Vol. 881, c. 264.]
I accept the Chancellor's advice that there is a liquidity crisis and that an improvement is needed immediately, but if that is so, why should he single out small businesses as being those which are not to benefit from his remission?

Mr. Nicholas Ridley: I am always impressed by the way in which the Under-Secretary of State for Industry, who has responsibility for small businesses, manages to get his cue right and appear in the Committee to listen to points usually raised by my

hon. Friend the Member for Basingstoke (Mr. Mitchell). I commend his assiduity and that of my hon. Friend. I wish that the Minister, instead of attending so often, would occasionally do something for small businesses, as he is supposed to do. When I occupied his shoes I was a rotten attender in the House, but at least I succeeded in doing a great deal more than he has done.
I couch my remarks in terms of small businesses because they will be disadvantaged by the clause. It is discriminatory in the extreme to pass tax legislation which gives relief to large businesses but not to small ones. A self-employed small business man might well feel bitter if he could listen to our debate. He is being asked to pay a higher insurance contribution, more rates and more tax to swell the coffers of the Exchequer—or to reduce the money streaming out of it—to give relief to large businesses which are often his competitors and in many cases will not extend credit to him or take credit from him. On every side the small business man is being beleaguered and the Government appear to be totally unaware of his plight.
I have one small request which I am sure the Treasury will grant, that companies whose opening and closing trading stock is under £25,000 will henceforth from today be exempt from price control. Will the Minister lay the necessary order to ensure that if they cannot get this relief they can at least freely put up their prices to cover their serious financial position?
Many small business men are not aware that they do not have to obey the Price Code. They are basically law-abiding honest people, and it would help them to be told that they do not have to obey it from now on. It is a contribution which either the Financial Secretary or the Under-Secretary of State could make—particularly the Under-Secretary of State for Industry, whose responsibility it is to look after small businesses. If he does not like my suggestion I hope that he will make another one.
I object to a system of tax relief which applies only to companies of a certain size and not to smaller companies. It will not satisfy me if the Financial Secretary repeats the argument which my hon.


Friend the Member for Basingstoke anticipated, that the administrative difficulties of working out the relief for all companies, particularly small ones, will be impossible.
The only conclusion one can come to is that it is a bad relief and that the relief should not have been given in this way. We are talking about the effect of inflation upon the finances of companies, large and small. We have been grossly overtaxing them because we have pretended that there is no inflation. As a stopgap, short-term measure for one year only this provision has been brought forward in place of a proper system for indexing taxation or a system of inflation accounting.
There was much talk about inflation accounting during the debate on the previous Finance Bill and the one before that brought in by my right hon. Friend. I hope that the Financial Secretary will tell us that at least by next year he will have prepared a proper system of financial accounting or inflation relief which will apply to all companies and which will be fair and proper. This stopgap measure shows how slow are the Government, civil servants and tax draftsmen to realise the effect of inflation and to do something about it. Inflation has been going on for years. Why have not the Government brought forward a proper scheme for protecting companies against the ravages of inflation? Why do we have to have this botched-up, discriminating, unfair, stopgap relief, welcome as it is to the few who benefit and unwelcome as it is to those who get no relief? I hope that the Financial Secretary will report to us the progress he has made in designing a system for protecting companies from the ravages of inflation.
I echo the belief expressed by my hon. Friend the Member for Basingstoke that discriminatory legislation of this sort will prove to be the last straw for many small firms. None of us who have been in our constituencies in the recent recess can be unaware of the feelings of shopkeepers, small business men and people running small enterprises that they are taking every kick and blow that comes along from the Government.
I hope that the Under-Secretary of State for Industry will not go away from the debate and say to his advisers "Why do

I have to listen to all the boring speeches on this subject in the Chamber?" I hope that he will go out among his governmental colleagues and say "This problem is affecting small businesses. What are you going to do about it? Why did you not do something about it in the Budget or in the Finance Bill or in some other way?" That is the job the hon. Gentleman should perform. Although I wish nothing but good will to the hon. Gentleman in that task, I am beginning to become a little impatient at the results, particularly when I see a provision such as Clause 16. I hope that my hon. Friends will press the amendment.

Mr. Crawford: I agree with what has been said by the hon. Members for Basingstoke (Mr. Mitchell) and Cirencester and Tewkesbury (Mr. Ridley). I hope that, in turn, they will agree with me that large companies do not just happen. Large companies grow from small companies:
Tall oaks from little acorns grow.
And small companies are based on the efforts of men of vision, entrepreneurs.
I echo what has been said about large companies squeezing small companies in terms of credit. The right hon. Gentleman the Chief Secretary said earlier that liquidity is a problem. Nowhere is it a greater problem than in the small firms, and it is they who should be given the greatest attention.
I am grateful to see present the Under-Secretary of State for Industry, who has responsibilities for small businesses. He will appreciate that the point I make is a Scottish one. Out of the 3,000 manufacturing firms on the register of the Scottish Council more than 1,500 employ more than 50 people; more than 500 employ between 50 and 100 people. In other words, well over half employ fewer than 100 people. I do not have the statistics for the service industries, but by and large the service industries employ fewer people than do manufacturing firms.
I would ask the Treasury to remember that there are such things as computers and telecommunications systems. Therefore, to say that there would be many more small companies to deal with in terms of tax relief is no real reason for discriminating against them.

7.45 p.m.

Mr. Wyn Roberts: I support the amendment. I echo the speech made by my hon. Friend the Member for Basingstoke (Mr. Mitchell) and I find myself very much in agreement with all that has been said so far on this group of amendments. I am particularly concerned about the value of small companies as employers, particularly in the rural areas of Scotland and Wales. In my county it is the small companies that provide a great deal of the employment and we are very dependent on them. I hope that the Under-Secretary of State for Industry is taking due note of these points. I know that he will agree that we must support the small companies to enable them to maintain employment in rural areas. Their need for relief, clearly, is just as great as, if not greater than, the need of large companies.
Since I am referring specifically to the small companies in rural areas, I urge on their behalf that their costs have probably risen far more than have the costs of major companies in the urban areas. I am thinking mainly of transportation costs, rates and so on. Therefore, their need for relief certainly exists.
The reason why the Government are unlikely to agree to our proposal will no doubt be given as lying in the administrative difficulties caused to the Inland Revenue, but the Government should make a very special effort indeed to help the small companies because of their needs and because of the way in which they provide employment. If we are persistent in asking why the Government may not help in this respect, we begin to feel that it is part of the Government's Marxist attack on middle-class institutions. This is becoming almost notorious in extent, and is rather like Stalin's attack on the Kulaks. What is needed is a change of mind by the Government and a willingness to help small companies which have given such valuable service, particularly in terms of employment which is in such danger these days.

Mr. Russell Fairgrieve: I, too, would like briefly to add my voice to what was said by my hon. Friend the Member for Basingstoke (Mr. Mitchell). It is significant that of the five people who have spoken on the amendment two represent Scottish constituencies

and one a Welsh constituency. Therefore I hope that the Under-Secretary of State for Industry, who represents a Scottish constituency, will appreciate the reasons for there being in this debate so many speakers from the rural areas.
In Scotland we have a large number of small businesses covering a wide sphere of activities. They range from the small family shop, with the service it gives to the community, to businesses which support agriculture. There are even industries, such as textiles, which produce goods which are household names but which still fall within the category of those with stocks of less than £25,000. We must remember that in Scotland and elsewhere most businesses are small businesses. It has already been said that it is the small efficient business that tomorrow will become the large business.
It is singularly unfair that this group of businesses should be selected for this treatment. Despite the figures which have been given, the effect is equally damaging. Whether one's stock amounts to £25,000 or £250,000, the same percentages apply throughout those areas in terms of profit, turnover and return on capital. These figures do not alter, so why are the Government now seeking to make an already difficult competitive position even more difficult? The Government's proposals will prevent many more small businesses from expanding, or even wishing to expand.

Mr. Cope: I was delighted to hear the hon. Member for Perth and East Perthshire (Mr. Crawford) refer to acorns and oaks in the context of small businesses. My hon. Friend the Member for Croydon, North-East (Mr. Weatherill) and I some years ago wrote a publication bearing the title "Acorns to Oaks", emphasising the importance of small businesses to the economy.

Mr. Ridley: No doubt my hon. Friend is aware that in succeeding clauses the Government intend to erect crippling taxes not only on acorns but on oaks as well.

Mr. Cope: I am aware of that but, having dwelt on the matter of small businesses in that booklet, I shall not go into the matter in detail in this discussion.
We can take it for granted that everyone on the Conservative benches and indeed the Under-Secretary of State for Industry with his responsibilities for small businesses, will recognise the importance of this sector of the economy. We should make it clear that the problems of administration which apparently prevent this relief, or which are causing relief to be withheld from this important sector, are not problems within the private sector or, indeed, problems facing small businesses but are problems involving the Inland Revenue.

The Financial Secretary to the Treasury (Dr. John Gilbert): indicated assent.

Mr. Cope: I see that the Financial Secretary is generous enough to agree.
The calculation is relatively easy. It will be done by the accountants, who do their work so well, as I am sure the Financial Secretary, who, like me, is an accountant, will agree.
I think that the problem arises from the administrative division of the Inland Revenue into two groups—collectors of taxes and inspectors of taxes. The inspectors basically look at the accounts, argue with the accountants and arrive at the amount of tax payable. They then pass over the papers to the collectors, who get the cash from the taxpayers. There are proper reasons for this division concerning the control of cash. At this time of year the inspectors have largely gone through the accounts and done the assessments and passed over the papers to the collectors. I accept that it is administratively difficult to reopen all the cases and correct the information which is passed to the collector. That is the nub of the administrative problem.
There is, however, a simple solution which I should have thought would appeal to the Revenue. A relatively simple form could be produced, in triplicate—which should also appeal to the Revenue. It would be a claim form to be filled in by the claimants and sent to the collector, who would accept the calculation of the accountants, or amend it, and retain one copy. The other two copies, suitably rubber-stamped, could be returned to the taxpayer, who would retain one and send the other authenticated and agreed copy to the collector along with a cheque for the balance.
This would be a relatively simple procedure for taxpayers, accountants and the Revenue, whose officials would sit there with their rubber stamp as the chitties came forward, saying "Chitty chitty, bang-bang". This is not a novel suggestion because I put it forward in the debate on small businesses before Christmas, as the Under-Secretary of State for Industry will remember.
If this scheme is not possible, I hope that the Financial Secretary will by now have found out why. The scheme would surely get around the administrative problems and should permit this important amendment to be made.

Mr. Wigley: Hon. Members have already noted that several of us from Wales and Scotland have spoken on this matter. In a rural area like mine, which until recently had no significant manufacturing development but is now making tentative progress, any measure penalising the small company could have serious effects. It is a matter not only of penalising stable companies but of stopping companies growing when they are in a difficult stage of development. In my own area over the last 10 years there have been 20 or 25 small industrial developments each employing up to 20 or 30 people. These are the foundations for an integrated future for our economy, without our having to depend completely on outside companies.

Dr. Gilbert: There is no question of this provision penalising small companies. It is just a question of when they will get the relief.

Mr. Wigley: I accept that, but when rates have risen so cripplingly, when water charges have hit so many companies hard in my area and transport costs are going up, the cost of stock at present interest rates is penal. Without this sort of relief, some companies will go out of business. Only two years ago the Council for Wales studied the availability of capital for small businesses—a difficult problem. When interest rates rise and inflation pushes up the cost of stocks, liquidity can be seriously affected.
The effect on the smaller company which does not have recourse to available capital, as is the case very often in my area, can be much more severe than on the larger companies with which I


was more familiar before I came to the House. Increased costs have hit such companies and unless some relief is given I am certain that redundancies, which have been running at the rate of four or five announcements per week for several weeks, will carry on hitting employees in my area.
As for administrative costs, income tax is administered for millions of people and I find it difficult to believe that this sort of provision cannot be administered, particularly on the basis of figures being submitted by a company, subject to spot checks if necessary and prosecution of exceptions for misrepresentation. Surely a way can be found. If the amendment is not acceptable, I ask the Government to find an alternative solution before Report.

Mr. Peter Rost: It is increasingly obvious that in resisting the amendment, as I judge from the expressions on Ministers' faces they will, the Government not only do not understand about small businesses but simply do not care. It does not suit them to allow entrepreneurial activity to continue. It is not just that these small businesses are not unionised, but it does not suit the Government's book to nationalise them. The only alternative is to squeeze them out of existence. That is precisely what is happening all over the country, particularly to very small businesses.
One of the main effects of inflation and the reason why the Government have accepted inflation accounting is the crippling cost of financing increased stocks. The extra cost of keeping the ordinary street corner shop stocked with goods has risen over the past 18 months, depending on the type of business, by 50 per cent. or more. This means that the average family retail business has to find at least an extra £2,000 to £3,000 to keep the shelves stocked with the same amount of goods.
That capital certainly does not come out of profits and it cannot be outside capital. The only other source is the banking system, which means increased indebtedness for the family, involving interest charges of at least £300 on top of the costs that the business already has to bear—the higher rates, the crippling taxes and the extra service charges.
It really is time that the Government took a look around the country and noted what was happening and how many small businesses and small retailers are folding up, going bankrupt or ceasing to trade. It is time that the Government took on board the penal effect which this legislation will have if it is not amended to provide the concession to those businesses which need it most and need it now, not in a year or two's time when many of them will have already gone bankrupt.

[Mr. BRYANT GODMAN IRVINE in the Chair]

8.0 p.m.

Mr. Giles Shaw: From the vehemence with which successive speakers from the Opposition benches have rallied to the cause of small businesses, it is obvious that we feel very strongly about the amendment so ably moved by my hon. Friend the Member for Basingstoke (Mr. Mitchell).
I want to draw close attention to the principle. The principle we seek is one of fairness, of the equitable distribution of the benefits to be obtained under the tax relief measure. The principle of fairness has been demonstrated by my hon. Friend the Member for Aberdeenshire, West (Mr. Fairgrieve). It applies certainly in terms of the valuation of stock, the proportion of trading profits, and so on, and it applies whether it be a large or a small business. But one of the most obvious places where it does not apply is in the percentage risk involved.
For the larger business there are many opportunities of offsetting risks. By establishing the sheer size of a large business, with its investment holdings and shareholdings, its banking facilities and its multiple assets, there are many areas in which the risks of a trading error or a trading down-turn can be offset. One of the most important of these areas in which it starts to handle risk is in the credit which it allows to its customers. It is very obvious to me that one of the first things which happen when a large concern is in difficulty is that it tightens up credit restrictions on those to whom it sells goods. We come, therefore, to the distribution area, where so many of these small businesses are located. They are among the first to suffer if a large supplier or manufacturer gets into difficulty.


I also make a special plea for the wholesalers in this regard.
The question of administrative costs has been raised, notably from the point of view that the Revenue and certainly retailers and wholesalers have had to tackle VAT without too much relief offered by the present Government or, indeed, by their predecessors. The question of fairness, therefore, is the principle which is attacked.
Secondly, when we talk about larger businesses we tend to forget that there are many smaller businesses which are vital suppliers to the larger businesses. When we talk about the motor industry we know that there are very big businesses in components supply, but when we talk of many other industries we quite often fail to recognise that it is a small manufacturer supplying a minute part to a larger manufacturer which is often vital in the success and profitability of the larger enterprise.
In my constituency, which is closely associated with the textile industry, a great many small firms supply specialist cloth or specialist engineering equipment to the textile industry. Most of these small firms are entirely family firms employing about 30 or 40 people. These firms see in this measure proposed by the Government not only the inequity or lack of relief but the general drift towards higher charges and taxes. They look askance at the proposal for the capital transfer tax, which has yet to be debated. When they look at all this and their problems, they must draw the conclusion that it is the Government's intention to ensure that the life of small businesses is less attractive, less profitable and less worth while.
I urge my colleagues that we should stand up and be counted as the supporters of the small businesses. I quote a highly qualified economist, Dr. Schumacher:
In the end, small is beautiful.

Mr. John Hannam (Exeter): I want briefly to speak in support of the amendment so ably moved by my hon. Friend the Member for Basingstoke (Mr. Mitchell). I had a wonderful picture of the constituency of my hon. Friend the Member for Gloucestershire, South (Mr. Cope) and of a rhythmic song in the Revenue office, "Chitty, chitty, bang-bang." But I rather feel that sometimes a more likely rhythm would be that which

we could take into account when we consider the tendency of tax collectors to hit us rather harder. "Chitty, chitty, bang-bang" implies a reasonably fair and acceptable quality. I see it rather more as "Chitty bang, chitty bang, chitty bang, bang, bang." We shall find ourselves being banged more often than helped by them.
I suport the amendments because I represent a constituency in the South-West, Exeter, in which the smaller business is the sector of our economic community which is being clobbered so hard by the Government. The latest figures which I have received of bankruptcies among smaller businesses for the last year indicate that bankruptcies have increased by about 38 per cent. That must give some indication of the problems facing our small business sector.
It is incomprehensible to me and, I think, to the hard-working self-employed and people in small partnerships and small firms that the Government should appoint a Minister with responsibility for small firms—although we are all pleased to see him present and taking an interest in the debate—but then systematically set out by successive measures to destroy that appointment. I suggest that the Minister responsible for small businesses may find himself in the position shortly of being a Minister without small businesses. unless he brings his full weight to bear on his colleagues.
The belated acceptance by the Chancellor of the need to offer help to this sector has been counterbalanced by the restrictive and discriminating nature of the Bill. Later we shall have the capital transfer tax to deal with and, I hope, to reject in Committee tonight. In the way that that has manifested itself, it is a malevolent piece of legislation aimed at finishing off the once proud backbone of our British free enterprise trading nation. The attributes of thrift, family and savings are all being systematically destroyed by the Government at a time when if ever our economic future depended on the efforts of the small entrepeneurs and the risk-taking small business man it is surely now, in 1975 and 1976.
About 10 million people, 39 per cent. of our working population, depend for their livelihood upon the privately-owned small firms. They are aghast at


the dangers now becoming apparent in the present attacks by the Government on the private sector.
It is quite wrong that we should have this lower limit of £25,000 stock value for tax relief. I hope that the Minister will accept the case which has been put so strongly by my hon. Friends, or will at least consult the Minister responsible for small businesses. Let us have flexibility and an awareness of the reality of the dangers facing our business sector if the small firm is extinguished from our economic society. I hope that the Government will accept this very reasonable amendment.

Dr. Gilbert: It falls to me, as tonight's spearhead of the Marxists' attack on the established institutions—in the phrase of the hon. Member for Conway (Mr. Roberts)—to reply to the debate.
The hon. Member for Basingstoke (Mr. Mitchell) is well known for his interest in the problems of small business men, but he could hardly claim credit—perhaps he did not, but his friends were giving him credit—for anticipating what I would have to say, because my right hon. Friend the Chancellor has already explained precisely the reasons why it would not be possible at this stage to give relief over and above that provided for in the Bill.
I quite understand the strong feelings of Opposition Members about the difficulties confronting small businesses. I am grateful to my hon. Friend the Under-Secretary of State for Industry, the Minister responsible for small businesses, for being on the Front Bench throughout the debate. It was a trifle churlish of the hon. Member for Cirencester and Tewkesbury (Mr. Ridley) to berate him for being here when, had he not been present, the hon. Gentleman would have been the first to berate him for his absence.

Mr. Ridley: What are the Government going to do?

Dr. Gilbert: The hon. Gentleman asks what we are going to do. He had in his speech one moment of his usual delicious candour when he wondered why the Government had done nothing about providing in the fiscal system for infla-

tion accounting. His phrase was "This"—meaning inflation—"has been going on for years." Successive Governments have wrestled with the problem. The Tory Government did not distinguish themselves by introducing provisions for inflation accounting in the fiscal system any more than when the hon. Gentleman was responsible for the problems of small businesses.

Mr. Ridley: While I was responsible for small businesses the Government introduced the small businesses corporation tax rate. There is a big difference between that and this rebate for big businesses.

Dr. Gilbert: It is up to the hon. Gentleman to blow his own trumpet in whatever way seems to him becoming. Whatever contribution he made to the affairs of small businesses, it did not seem to impress the leaders of his party sufficiently to entrust him with that responsibility for the full life of the previous Government. Let us pass over that as we may.
The hon. Member for Perth and East Perthshire (Mr. Crawford) spoke about computers, telecommunications and so on. He is not present. The problem is not one of lack of hardware. The basic point is that we are talking about hundreds of thousands of cases which have already been assessed and which are going through the administrative machine. The hon. Member for Gloucestershire, South (Mr. Cope) recognised that there was a serious problem and that if staff were to be reallocated from their present functions—they are engaged in next year's programme—and were brought back to work on relief of this sort it would lead to an administrative nightmare. That is the only reason for this exclusion. My right hon. Friend would have preferred to have given the exclusion immediately to all categories of businesses, whether incorporated or not, and whether large or small. He made it clear that only administrative reasons prevented him from doing so.
It is the contention of the hon. Member for Basingstoke that one group of small companies will not benefit from the proposal. Granted, they will not benefit immediately. That is a matter for regret, and we have never disguised our feelings in that respect. The Government have made it clear that when we are able to legislate for relief for them with respect


to the current year's problems we will take fully into account the fact that they have had to wait for relief, unlike the larger companies. I only ask the hon. Gentleman to judge, when he sees the proposals we put forward, whether they are adequate or not in that regard. We are firmly of the opinion that when we are able to bring forward the relief it will compensate some companies for the fact that they have not obtained it as early as have other companies.

8.15 p.m.

Mr. David Mitchell: During the Second Reading the Chief Secretary referred to "bankable assurances". Will the hon. Gentleman go further and explain whether they are bankable assurances? How does one bank them? Do we obtain interest on the outstanding money, during the period when we have to borrow at excessively high rates of interest to keep going?

Dr. Gilbert: I have in no way fallen short of the factual assurances given by my right hon. Friend to the House with respect to the reliefs to be brought forward. I have not followed my right hon. Friend in using the same adjective to describe them. However, I endorse what my right hon. Friend said on that occasion. The fact is that the relief is coming and is known to be coming. A company will be able to go to its bank and say "We are entitled to this amount". It will be a matter which it could raise in negotiations with its bank managers.

Mr. David Mitchell: That is a very important statement. It was not revealed before by the Chancellor that there will be a remission of tax, calculated now, so that we may go to our bankers and say that we shall receive so much money during the next year. That is the obvious inference of what the Minister has just said.

Dr. Gilbert: The hon. Gentleman knows that when my right hon. Friend spoke of bankable assurances he meant that these were firm assurances on which companies could rely in trying to obtain credit from their bankers. That is clear. The hon. Gentleman is trying to make bricks out of straw.
The whole of the tenor of the debate and the hon. Gentleman's anxiety to pro-

tect the small businesses has been to the effect that this clause clobbers small businesses. This is in no sense a penal clause. Understandably and properly, the hon. Gentleman deplores the absence of relief. I assure the hon. Gentleman that the relief is coming. The relief has been promised. When the relief comes allowance will be made for the fact that there has been a delay in making it available.

Mr. David Howell: Of all the arguments we have heard this evening from the Treasury Bench for resisting amendments, these are undoubtedly the flimsiest.
The Financial Secretary drew back from using the word "bankable" in following his right hon. Friend down that path, and he is right to do so. It is generally recognised that that was a highly misleading word used in a highly misleading way. The interventions of my hon. Friend the Member for Basingstoke (Mr. Mitchell) demonstrated that beyond all doubt.
As for the resistance to the proposal to exclude businesses below the £25,000 closing stock value, that rules out the small traders and small businesses who are most in need. Can they hold out longest? On the contrary, they need immediate relief—not assurances, bankable or otherwise, next year. They are in dire need now.
Is there an administrative problem? Both my hon. Friends the Member for Gloucestershire, South (Mr. Cope) and the hon. Member for Basingstoke showed that that problem can easily be resolved. My hon. Friend the Member for Gloucestershire, South showed that the task is simple since most of the work is done by accountants. It is a narrow problem for any party.
On the contrary, during the last half hour we have heard hon. Members representing many parts of the United Kingdom, pointing out the dire difficulties experienced by small businesses, which should be helped the most, not the least. The truth is that there is no need for delay.
The Government are against the independent sector. They do not like small businesses. They subscribe to the modern, strange form of Socialism which favours large units, big unions and big battalions. The Opposition favour the little platoons. That is why we support the amendments.

Question put, That the amendment be made:—

Division No. 66.]
AYES
[8.21 p.m.


Adley, Robert
Gower, Sir Raymond (Barry)
Morgan, Geraint


Aitken, Jonathan
Grant, Anthony (Harrow C)
Morris, Michael (Northampton S)


Alison, Michael
Gray, Hamish
Morrison, Charles (Devizes)


Amery, Rt Hon Julian
Griffiths Eldon
Morrison, Peter (Chester)


Arnold, Tom
Grimond, Rt Hon J.
Mudd, David


Atkins, Rt Hon H.(Spelthorne)
Grist, Ian
Neave, Airey


Awdry, Daniel
Grylls, Michael
Nelson, Anthony


Bain, Mrs Margaret
Hall, Sir John
Neubert, Michael


Banks, Robert
Hall-Davis, A. G. F.
Newton, Tony


Beith, A. J.
Hamilton, Michael (Salisbury)
Nott, John


Bell, Ronald
Hampson, Dr Keith
Onslow, Cranley


Bennett, Dr Reginald (Fareham)
Hannam, John
Oppenheim, Mrs Sally


Benyon, W.
Hastings, Stephen
Page, Rt Hon R. Graham (Crosby)


Berry, Hon Anthony
Havers, Sir Michael
Pardoe, John


Biffen, John
Hawkins, Paul
Parkinson, Cecil


Biggs-Davison, John
Hayhoe, Barney
Pattie, Geoffrey


Blaker, Peter
Heath, Rt Hon Edward
Penhaligon, David


Boscawen, Hon Robert
Henderson, Douglas
Percival, Ian


Bowden, A. (Brighton, Kemptown)
Heseltine, Michael
Peyton, Rt Hon John


Boyson, Dr Rhodes (Brent)
Hicks, Robert
Pink, R. Bonner


Braine, Sir Bernard
Higgins, Terence L.
Powell, Rt Hon J. Enoch


Brittan, Leon
Holland, Philip
Price, David (Eastleigh)


Brotherton. Michael
Hooson, Emlyn
Prior, Rt Hon James


Brown, Sir Edward (Bath)
Hordern, Peter
Raison, Timothy


Buchanan-Smith, Alick
Howell, David (Guildford)
Rathbone, Tim


Buck, Antony
Howell Ralph (North Norfolk)
Rawlinson, Rt Hon Sir Peter


Budgen, Nick
Howells, Geraint (Cardigan)
Rees, Peter (Dover &amp; Deal)


Bulmer, Esmond
Hurd, Douglas
Rees-Davies, W. R.


Burden, F. A.
Hutchison, Michael Clark
Reid, George


Butler, Adam (Bosworth)
Irving, Charles (Cheltenham)
Renton, Rt Hon Sir D. (Hunts)


Carr, Rt Hon Robert
Jenkin, Rt Hon P. (Wanst'd &amp; W'df'd)
Renton, Tim (Mid-Sussex)


Chalker, Mrs Lynda
Jessel, Toby
Ridley, Hon Nicholas


Channon, Paul
Johnson Smith, G. (E Grinstead)
Ridsdale, Julian


Clark, Alan (Plymouth, Sutton)
Jones, Arthur (Daventry)
Rifkind, Malcolm


Clarke, Kenneth (Rushcliffe)
Jopling, Michael
Roberts, Michael (Cardiff NW)


Cockcroft, John
Joseph, Rt Hon Sir Keith
Roberts, Wyn (Conway)


Cooke, Robert (Bristol W)
Kaberry, Sir Donald
Ross, William (Londonderry)


Cope, John
Kellett-Bowman, Mrs Elaine
Rossi, Hugh (Hornsey)


Cormack, Patrick
Kershaw, Anthony
Rost, Peter (SE Derbyshire)


Corrie, John
Kimball, Marcus
Sainsbury, Tim


Costain, A. P.
King, Evelyn (South Dorset)
St. John-Stevas, Norman


Crawford, Douglas
King, Tom (Bridgwater)
Shaw, Giles (Pudsey)


Crouch, David
Kitson, Sir Timothy
Shaw, Michael (Scarborough)


Crowder, F. P.
Knight, Mrs Jill
Shelton, William (Streatham)


Dean, Paul (N Somerset)
Knox, David
Shepherd, Colin


Dodsworth, Geoffrey
Lamont, Norman
Silvester, Fred


Douglas-Hamilton, Lord James
Lane, David
Sims, Roger


Drayson, Burnaby
Langford-Holt, Sir John
Sinclair, Sir George


Dunlop, John
Latham, Michael (Melton)
Skeet, T. H. H.


Durant, Tony
Lawrence, Ivan
Smith, Cyril (Rochdale)


Dykes, Hugh
Lawson, Nigel
Smith, Dudley (Warwick)


Eden, Rt Hon Sir John
Le Marchant, Spencer
Spence, John


Edwards, Nicholas (Pembroke)
Lewis, Kenneth (Rutland)
Spicer, Jim (W Dorset)


Elliott, Sir William
Lloyd, Ian
Spicer, Michael (S. Worcester)


Emery, Peter
Loveridge, John
Sproat, Iain


Evans, Gwynfor (Carmarthen)
MacCormick, Iain
Stainton, Keith


Ewing, Mrs Winifred (Moray)
McCrindle, Robert
Stanbrook, Ivor


Eyre, Reginald
Macfarlane, Neil
Stanley, John


Fairbairn, Nicholas
MacGregor, John
Stewart, Donald (Western Isles)


Fairgrieve, Russell
Macmillan, Rt Hon M. (Farnham)
Stewart, Ian (Hitchin)


Fell, Anthony
McNair-Wilson, M. (Newbury)
Stokes, John


Finsberg, Geoffrey
McNair-Wilson, P. (New Forest)
Taylor, R. (Croydon NW)


Fisher, Sir Nigel
Madel, David
Taylor, Teddy (Cathcart)


Fookes, Miss Janet
Marten, Neil
Tebbit, Norman


Fowler, Norman (Sutton C'f'd)
Mates, Michael
Temple-Morris, Peter


Fraser, Rt Hon H. (Stafford &amp; St)
Mather, Carol
Thatcher, Rt Hon Margaret


Freud Clement
Maude, Angus
Thomas, Dafydd (Merioneth)


Fry, Peter
Mawby, Ray
Thomas, Rt Hon P. (Hendon S)


Galbraith, Hon T. G. D.
Maxwell-Hyslop, Robin
Thompson, George


Gardiner, George (Reigate)
Mayhew, Patrick
Trotter, Neville


Gardner, Edward (S Fylde)
Meyer, Sir Anthony
Tugendhat, Christopher


Gilmour, Sir John (East Fife)
Miscampbell, Norman
van Straubenzee, W. R.


Glyn, Dr Alan
Mitchell, David (Basingstoke)
Viggers, Peter


Goodhart, Philip
Moate, Roger
Wakeham, John


Goodhew, Victor
Molyneaux, James
Walder, David (Clitheroe)


Goodlad, Alastair
Monro, Hector
Walker, Rt Hon P. (Worcester)


Gorst, John
Moore, John (Croydon C)
Walker-Smith, Rt Hon Sir Derek


Gow, Ian (Eastbourne)
More, Jasper (Ludlow)
Walters, Dennis

The Committee divided: Ayes 244, Noes 258.

Watt, Hamish
Wigley, Dafydd



Weatherill, Bernard
Wilson, Gordon (Dundee E)
TELLERS FOR THE AYES:


Wells, John
Winterton, Nicholas
Mr. John Stradling Thomas and


Welsh, Andrew
Young, Sir G. (Ealing, Acton)
Mr. Richard Luce.


Whitelaw, Rt Hon William
Younger, Hon George





NOES


Abse, Leo
Evans, loan (Aberdare)
Mackintosh, John P.


Allaun, Frank
Evans, John (Newton)
Maclennan, Robert


Anderson, Donald
Ewing Harry (Stirling)
McMillan, Tom (Glasgow C)


Archer, Peter
Fernyhough, Rt Hon E.
Madden, Max


Armstrong, Ernest
Flannery, Martin
Magee, Bryan


Ashley, Jack
Fletcher, Ted (Darlington)
Mahon, Simon


Ashton, Joe
Foot, Rt Hon Michael
Marks, Kenneth


Atkins, Ronald (Preston N)
Ford, Ben
Marquand, David


Atkinson, Norman
Forrester, John
Marshall, Dr Edmund (Goole)


Barnett, Guy (Greenwich)
Fowler, Gerald (The Wrekin)
Marshall, Jim (Leicester S)


Barnett, Rt Hon Joel
Fraser, John (Lambeth, N'w'd)
Mason, Rt Hon Roy


Bates, Alf
Freeson, Reginald
Meacher, Michael


Bean, R. E.
Garrett, John (Norwich S)
Mellish, Rt Hon Robert


Benn, Rt Hon Anthony Wedgwood
Garrett, W. E. (Wallsend)
Mikardo, Ian


Bennett, Andrew (Stockport N)
George, Bruce
Millan, Bruce


Bidwell, Sydney
Gilbert, Dr John
Miller, Dr M. S. (E. Kilbride)


Blenkinsop, Arthur
Ginsburg, David
Mitchell, R. C. (Soton, Itchen)


Boardman, H.
Golding John
Molloy, William


Booth, Albert
Gould, Bryan
Moonman, Eric


Boothroyd, Miss Betty
Gourlay, Harry
Morris, Alfred (Wythenshawe)


Bottomley, Rt Hon Arthur
Graham, Ted
Morris, Charles R. (Openshaw)


Boyden, James (Bish Auck)
Grocott, Bruce
Mulley, Rt Hon Frederick


Bradley, Tom
Hamilton, James (Bothwell)
Murray, Ronald King


Bray, Dr Jeremy
Hamilton, W. W. (Central Fife)
Newens, Stanley


Brown, Hugh D. (Provan)
Hamling, William
Noble, Mike


Buchan, Norman
Hardy, Peter
Ogden, Eric


Buchanan, Richard
Harrison, Walter (Wakefield)
O'Halloran, Michael


Butler, Mrs Joyce (Wood Green)
Hart, Rt Hon Judith
Orbach, Maurice


Callaghan, Rt Hon J. (Cardiff SE)
Hattersley, Rt Hon Roy
Ovenden, John


Callaghan, Jim (Middleton &amp; P)
Hatton, Frank
Owen, Dr David


Campbell, Ian
Hayman, Mrs Helene
Padley, Walter


Canavan, Dennis
Healey, Rt Hon Denis
Palmer, Arthur


Cant, R. B.
Heffer Eric S.
Park, George


Carmichael, Neil
Hooley, Frank
Parker, John


Carter, Ray
Horam, John
Parry, Robert


Carter-Jones, Lewis
Hoyle, Douglas (Nelson)
Pavitt, Laurie


Cartwright, John
Hughes, Rt Hon C. (Anglesey)
Perry Ernest


Castle, Rt Hon Barbara
Hughes, Mark (Durham)
Phipps, Dr Colin


Clemitson, Ivor
Hughes, Robert (Aberdeen N)
Prentice, Rt Hon Reg


Cocks, Michael (Bristol S)
Hughes, Roy (Newport)
Price, C. (Lewisham W)


Coleman, Donald
Hunter, Adam
Price, William (Rugby)


Colquhoun, Mrs Maureen
Irvine. Rt Hon Sir A. (Edge Hill)
Rees, Rt Hon Merlyn (Leeds S)


Conlan, Bernard
Irving, Rt Hon S. (Hartford)
Richardson, Miss Jo


Cook, Robin F. (Edin C)
Jackson, Colin (Brighouse)
Roberts, Gwilym (Cannock)


Corbett, Robin
Jackson, Miss M. (Lincoln)
Robertson, John (Paisley)


Craigen, J. M. (Maryhill)
Janner, Greville
Roderick, Caerwyn


Crosland, Rt Hon Anthony
Jay, Rt Hon Douglas
Rodgers, George (Chorley)


Cryer, Bob
Jeger, Mrs Lena
Rodgers, William (Stockton)


Cunningham, G. (Islington S)
Jenkins, Rt Hon Roy (Stechford)
Rooker, J. W.


Cunningham, Dr J. (Whiteh)
John, Brynmor
Ross, Rt Hon W. (Kilmarnock)


Dalyell, Tam
Johnson, James (Hull West)
Rowlands, Ted


Davidson, Arthur
Johnson, Walter (Derby S)
Ryman, John


Davies, Bryan (Enfield N)
Jones, Alec (Rhondda)
Sandelson, Neville


Davies, Denzil (Llanelli)
Jones, Barry (East Flint)
Sedgemore, Brian


Davies, Ifor (Gower)
Judd, Frank
Selby, Harry


Davis, Clinton (Hackney C)
Kaufman, Gerald
Shaw, Arnold (Ilford South)


Deakins, Eric
Kelley, Richard
 Sheldon, Robert (Ashton-u-Lyne)


Dean, Joseph (Leeds West)
Kerr, Russell
Shore, Rt Hon Peter


de Freitas, Rt Hon Sir Geoffrey
Kilroy-Silk, Robert
Short, Rt Hon E. (Newcasle C)


Delargy, Hugh
Kinnock, Neil
short, Mrs Renée (Wolv NE)


Dell, Rt Hon Edmund
Lambie, David
Silkin, Rt Hon S. C. (Dulwich)


Dempsey, James
Lamborn, Harry
Sillars, James


Doig, Peter
Lamond, James
Silverman, Julius


Dormand, J. D.
Latham, Arthur (Paddington)
Skinner, Dennis


Douglas-Mann, Bruce
Leadbitter, Ted
Smith, John (N Lanarkshire)


Duffy, A. E. P.
Lee, John
Snape, Peter


Dunn, James A.
Lever, Rt Hon Harold
Spriggs, Leslie


Dunnett, Jack
Lewis, Ron (Carlisle)
Stallard, A. W.


Dunwoody, Mrs. Gwyneth
Litterick, Tom
Stewart, Rt Hn M. (Fulham)


Edelman, Maurice
Lomas, Kenneth
Stoddart, David


Edge, Geoff
Loyden, Eddie
Stott, Roger


Edwards, Robert (Wolv SE)
Luard, Evan
Strauss, Rt Hon G. R.


Ellis, John (Brigg &amp; Scun)
Lyon, Alexander (York)
Summerskill, Hon Dr Shirley


Ellis, Tom (Wrexham)
McElhone, Frank
Taylor, Mrs Ann (Bolton W)


English, Michael
McGuire, Michael (Ince)
Thomas, Jeffrey (Abertillery)


Ennals, David
Mackenzie, Gregor
Thomas, Mike (Newcastle E)




Thomas, Ron (Bristol NW)







Thorne, Stan (Preston South)
Weitzman, David
Wilson, Alexander (Hamilton)


Tierney, Sydney
Wellbeloved, James
Wilson, William (Coventry SE)


Tinn, James
White, Frank R. (Bury)
Wise, Mrs Audrey


Tomlinson, John
White, James (Pollock)
Woodall, Alec


Varley, Rt Hon Eric G.
Whitehead, Phillip
Woof, Robert


Wainwright, Edwin (Dearne V)
Whitlock, William
Wrigglesworth, Ian


Walker, Harold (Doncaster)
Willey, Rt Hon Frederick
Young, David (Bolton E)


Walker, Terry (Kingswood)
Williams, Alan (Swansea W)



Ward, Michael
Williams, Alan Lee (Hornchurch)
TELLERS FOR THE NOES:


Watkinson, John
Williams, Rt Hon Shirley (Hertford)
Mr. Joseph Harper and


Weetch, Ken
Williams, W. T. (Warrington)
Mr. Thomas Cox.

Question accordingly negatived.

8.30 p.m.

Mr. Peter Hordern: I beg to move Amendment No. 35, in page 13, line 23, leave out 'three months' and insert 'two years'.

The Temporary Chairman: With this we can discuss Opposition Amendment No. 82, in page 13, line 34, leave out 'six months' and insert 'two years'.

Mr. Hordern: These amendments refer to the period of time in which a company can make a claim for the purpose of relief for stock appreciation. We submit that the period of six months is far too short. We have been asked by the Financial Secretary to the Treasury, in a disgraceful account of the troubles to which small businesses will be put by this provision in the clause, to believe that there will be no inconvenience and that the Government have offered these businesses what they call bankable assurances. Now we come to the practical difficulties that will arise for professional firms in advising companies when and how they should make their claims. These are genuine practical difficulties, and I cannot believe that the Government are aware of them. In any event, the Bill is not drafted in a way which is intelligible to the professional firms which have to advise companies.
I want to quote from a letter I have received from a large firm of accountants expressing some of the difficulties. It says:
In the Press Release issued on 10th December last companies were requested to send claims to the Inspector of Taxes as soon as possible with the clear intention of enabling tax payable 'probably on 1st January, 1975' to be held over.
The clause contains no provision for the withdrawal of a claim once it has been made, so that any claim that is made has to be made very seriously, taking every possible factor into account. Under subsection (6) of the clause a time limit is provided within which a claim must

be made. Assuming that subsection (6)(b) applies, the last date for making the claim will probably fall before the Finance Bill for the spring Budget is available.
The letter continues:
It accordingly follows that taxpayers will not be aware of the stock relief rules for 'year two' and accordingly not in a position to decide whether a claim should be made.
Earlier, the Chief Secretary to the Treasury said that the Government were proposing to bring in a further arrangement during the spring Budget. But that is not something on which firms of accountants and advisers to companies can act. I shall quote a practical example.
Suppose that there is a group of companies in the building trade with an accounting year to 30th April. The stock relief for year one is based on the accounts to 30th April 1973. Any stock relief claimed will be granted, therefore, at an effective corporation tax rate of 41 per cent. We do not know what the position will be as a result of the next Budget. In the absence of any announcement, normally there would be a claw-back in year two which could well be taxed at the rate of 52 per cent. Unless this uncertainty is resolved that group of companies will make no claim.
Accountants who are in the position also of being auditors have to advise companies and have to deal with company accounts under this provision, and they have to consider how any entitlement to stock relief is dealt with in the company's accounts. There are no details at present about the relief which would be available in year two, and the only prudent course available to firms of accountants is to credit the relief by way of reduction of the liability for deferred taxation. This means that consequently there can be no credit to profit and loss account, but, of course, there will at least be an improvement in the net current assets. The absence of any credit to


profit and loss account will be badly received by companies at an unprofitable stage in their career.
I hope that the Financial Secretary has understood the position, because it is a most serious matter that within a very short period companies have to make a claim upon which a great deal will hang, and to claim, furthermore, in advance of the position for the next tax year, since this has yet to be announced.
Professional firms are in difficulties. How can they properly advise companies in the position that I have quoted? I hope that the hon. Gentleman will give more positive assurances than he has been able to give so far and will at least indicate what companies can expect in year two, otherwise they will not know their corporation tax position or what the claw-back will be. They will be incapable of making proper provisions in companies' accounts to deal with the relief which is proposed.
This is an important matter. I hope, therefore, that the Financial Secretary will give a clear assurance and will make much clearer than is presently the case what the position of those companies will be. The easiest way of doing so is to extend the period in which a claim may be made. The most sensible way of doing that is to extend the period from three months to two years, as suggested in the amendment, which would allow the company to take the maximum advantage of the stock appreciation position, which is surely what the Government's intention must be.
This provision should not be framed too tightly. It is no use arguing that it is only a temporary arrangement and that further positive arrangements will be made in the next Budget and will be incorporated in a future Finance Bill. Groups of companies and companies which must be advised by accountants must know the position so that they can make proper arrangements for the stock appreciation position.

Dr. Gilbert: I listened carefully to the hon. Member for Horsham and Crawley (Mr. Hordern). I accept that he made a serious and important point. I emphasise that we are talking about companies whose assessments are already final. The clause as drafted provides a period of three months after Royal Assent within which

a company can claim with respect to the direct relief, as it were, arising from our proposals, and a further three months after that within which it can claim for any consequential reliefs which might arise as a result of the first relief being granted.
Some of these companies have had their assessments final for some time. We are talking about companies whose financial year ended in the financial year 1973, which itself ended on 31st March 1974. Therefore, some of these assessments relate to corporate accounts which go back some time.
We are dealing with the larger companies and professional firms of accountants, among whom there is a great deal of expertise in these matters and a considerable degree of sophistication in terms of tax planning. I recognise that considerable sums of money may be involved in certain of these cases.
I am anxious to make progress. The hon. Gentleman will not be surprised to hear that I cannot accept the amendments, which would extend both these periods to two years, because on the face of it that would involve companies in using this relief for long-range tax planning considerations rather than for the immediate benefits which was the aim of my right hon. Friend's provisions. However, I am prepared to look at this matter again. I give the hon. Gentleman no undertakings, and I certainly would not want to raise his hopes that I would even think of the possibility of going as far as two years. On that understanding, perhaps we can make progress.

Mr. Hordern: I am delighted to hear that undertaking. This is a serious point. It is causing great inconvenience. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Mr. Peter Rees: I beg to move Amendment No. 37, in page 13, line 41, leave out from "stock" to end of line 6 on page 14.

The Temporary Chairman: With this we are to take the following amendments:
No. 71, in page 14, line 2, after "Act" insert:
unless the services are ancillary to the trade carried on".
No. 41, in page 14, line 23, leave out from "losses)" to end of line 26.

Mr. Rees: The Chief Secretary told us that the clause is rough and ready, and he was candid enough to admit that the relief distributed will be a little haphazard. The purpose of the amendment is to smooth off one of the rougher edges of the clause.
As I understand subsection (8), it is designed to limit the types of stock which will attract relief. Paragraph (a) appears to exclude securities, though why securities should be excluded it is hard to see since they, too, reflected inflation in 1973. Equally sharply, they have deflated in subsequent years. Paragraph (c) excludes the stock of companies carried on in partnership with individuals. It is a little difficult to understand the underlying logic of that.
Then paragraph (b) seeks to exclude
any services, article or material which, if the trade concerned were a profession, would be treated as work in progress for the purposes of section 138
of the Taxes Act. There is no logic discernible, at any rate to me, in this provision. I can think of four types of company which might be affected by paragraph (b). Other hon. Members may be able to recall other varieties of company. The first might be a construction company which has a design department and carries on what might be called quasi-professional work. Again, various engineering companies have pattern departments, and chemical companies have laboratory work involved in their trade. A fourth category, I suppose, would be shipping companies which are engaged in the design and construction of ships. I can see no rhyme or reason why they should have their relief cut down in this way.
It may be that the Financial Secretary is concerned with tax avoidance. There are always deep ancestral voices calling him to be stricter and sterner in this regard. But, dealing with accounts of past years, it seems unlikely that a person would be able to put his stock into a company and take advantage of this clause. It may be argued that there should be parity of treatment with the professions. But the professions are entirely excluded in any event. Finally, it might be argued that there is a certain administrative convenience in excluding

this type of stock. But since the identification and separation of services, articles and materials by a company whose normal stock in trade will add to rather than subtract from the complications, I can see no real substance in that argument.
I can only assume that the Government have not thought properly through this provision, and now that the anomalies have been drawn to their attention I hope they will accept the amendment with good grace.

Dr. Gilbert: I congratulate the hon. and learned Member for Dover and Deal (Mr. Rees) on his appearance at the Dispatch Box. I am not sure whether this is his first appearance there, but it is long overdue. I hope that compliments from me will not result in his returning to the back benches, like his hon. Friend the Member for Kingston-upon-Thames (Mr. Lamont), particularly if it results in a marked reduction in the eloquence of the hon. and learned Gentleman.
The hon. and learned Gentleman is quite right. These amendments address themselves to anomalies, and I do not pretend to the contrary. I would merely say that to pass the amendments would create further anomalies. There are administrative questions involved, and, while I shall not pretend that they are not insurmountable, they exist and add to the complications of administering this relief.
In practice there could be considerable problems of calculation—the question of following the effects of apportionment through the various stages of giving relief, the carry-forwards and sideways transfers of losses and that sort of thing. When we are talking about companies in partnership with unincorporated businesses there really would be administrative difficulties which would be out of all proportion to the relief that might be available.
Coming to Amendment No. 71 which calls for relief on professional services ancillary to a trade, while I concede that this proposal has some merit in principle, it would again import into the operation of relief a judgment as to the nature of the circumstance, as to whether or not a professional service was, in fact, ancillary to a trade. That would have


to be decided in each case, which would only lead to considerable delays and the exercise of judgment as between the Revenue and the taxpayer.
I am abbreviating the argument because I know what the Committee wishes to make progress towards the next clause. I do not suppose that the hon. and learned Gentleman will find the answer I have given satisfactory, but I hope it is an explanation that he will appreciate. I am unable to give him any assurance on this point.

8.45 p.m.

Mr. Peter Rees: I am grateful to the Financial Secretary for his kind words to me personally. After crossing swords with him at the Dispatch Box I shall return to the obscurity from which I came. Before I do so, however, I must tell him that his argument has been so abbreviated that I am left entirely in the dark about the real reasons for his resisting the amendment. It seeks to broaden the definition so as to include every type of stock in trade other than those categories in paragraphs (a) and (c). The more the Government seek to define and limit the types of stock in trade or work in progress which will attract relief, obviously the greater the problems of definition, identification and separation. It seems, therefore, that, so far from adding to the administrative problems of the revenue and the companies, the amendment will ease those problems.
It stands to reason that the easiest definition is to say that all stock in trade must be taken into account under the clause. The Government have sought to extract and support three important categories. In our modesty my right hon. and hon. Friends and myself have merely aimed our fire at one particular category of exclusion. Knock that out and at least one range of problems will be eliminated. I can only conclude by saying that the Financial Secretary has not grasped what we are aiming at or the problems likely to be faced by companies in the operation of the clause. Alternatively, he is being as obdurate as—dare I say it?—we found him to be in the summer. I had hoped that the pleasant months of relaxation over the recess had perhaps mellowed him. Alas, I have been proved wrong.

Dr. Gilbert: Perhaps I may say a little more on the amendment, which is always a rash thing to do because it might

provoke the hon. and learned Member to further eloquence. I am sorry to have lost my good character so soon.
The categories of exclusions in the Bill are quite straightforward. The only one that refers to a type of work in progress is the one in respect of professional work in progress. The others relate to situations in which there is an exclusion. The vast majority of professional work in progress relates to individuals and partnerships and to unincorporated businesses. We believe that it would be to create another anomaly if we were to allow that to be available only where incorporated professional firms—those fortunate enough to be able to take advantage of incorporation—could benefit from this relief.
I accept that the Bill contains anomalies, but the adoption of the amendment would, we believe, while removing some anomalies, create others, and we do not believe that to be satisfactory.

Amendment negatived.

Mr. Cope: I beg to move Amendment No. 73, in page 14, line 15, leave out paragraph (a).

The Temporary Chairman: With this we shall also consider the following amendments: No. 74, in page 14, line 19, at end insert:
'(b) it shall be reduced by the amount of any charges on income computed in accordance with section 248 of the Taxes Act.'.
No. 83, in page 14, line 20, at end insert:
'(b) charges on income as defined in section 248 of the Taxes Act shall be deducted'.
No. 84, in page 14, line 26, at end insert:
'(d) payment disallowed under the provisions of section 130 of the Taxes Act 1970 in respect of interest, royalties or other sums paid in respect of patents, or any rent, royalty or other payment which, by section 156 or 157 of that Act is declared to be subject to deduction of tax under Part II of that Act as if it were a royalty or other sum paid in respect of the user of a patent, shall be deducted'.

Mr. Cope: The purpose of the amendment is to leave out of the calculation of trading income, for the purpose of applying the 10 per cent. reduction, paragraph (a) which provides for the artificial addition to trading income of capital allowances which would otherwise be received. We had a discussion earlier about the


10 per cent. reduction in the relief, but it was not satisfactory. We heard no real reason, other than the one of cost, for the 10 per cent. provision to be included at all. If cost is to be the principal reason for rejection of the amendment, as seems likely, I hope that we shall be told what the cost is. I can see no logical reason why the paragraph should be included in the Bill.
"Trading income" has a meaning to all of us. It means income left after one has finished trading. To say that it equals the income left after one has finished trading, plus depreciation, is to depart considerably from logic. Governments, of course, regularly depart from logic. I do not pretend that the present Government are unique in that respect. The point of Amendment No. 73, the principal amendment, is that the paragraph deserves to be left out of the Bill.
Amendment No. 74, like Amendment No. 83, refers to Section 248 of the Taxes Act. It has the effect of altering another of the adjustments at present in the calculation of 10 per cent. I see no justification for allowing short-term interest as a deduction in computing trading interest but disallowing medium- or long-term interest. Once again, there appears to be no logic in the situation. I hope that the Minister will describe to us the logic which has led the Government to include these matters in the calculation of the relief. I hope that, in particular, he can tell us the cost, if that is the ground on which the Government will reply.

Mr. Hordern: I should like to speak briefly on Amendments Nos. 83 and 84, which deal with further anomalies.
Amendment No. 83 seeks to correct the anomaly of the distinction between bank loans and overdrafts which are allowed for stock appreciation relief and deductions and borrowing on, for example, unsecured notes from which income tax is deducted at source at the time of payment. Interest is not deductible under those rules because relief is being given for corporation tax by the separate device known as a charge on income.
If we have two businesses with identical profits, trading stocks and borrowings, one with a bank overdraft and the other financed by an issue of unsecured loan

notes, the business with bank borrowings will have a smaller trading income for the purposes of the clause. Therefore, it will have greater tax relief, whereas the company which has borrowed under unsecured notes will not have a similar relief. The anomaly seems perfectly simple to correct, and I hope that the Financial Secretary will do so. Whether he does it in terms of the amendment does not matter.
Amendment No. 84 deals with the treatment of royalties. A business which manufactures under licence must deduct income tax at source at the time of payment of royalties to the owner of the patents. Such royalty payments are also treated as a charge on income and so are not deductible in arriving at trading income. All taxpayers will be in the same boat. In most cases royalties will be disallowable for this purpose. However, royalties surely should be deductible in arriving at trading income and should not be disallowed for the purposes of Clause 16, which itself is supposed to provide income merely because of the longstanding law which requires any tax to be deducted at source at the time of payment. There is no reason for that old provision to have any influence on the stock appreciation measure.
I hope that these two simple amendments which my hon. Friend the Member for Gloucestershire, South (Mr. Cope) so ably proposed will be accepted readily by the Financial Secretary.

Mr. Dodsworth: I rise briefly to support my hon. Friend the Member for Gloucestershire, South (Mr. Cope) in the deletion of paragraph (a) in Amendment No. 73. It appears that a form of penalty is being exacted at a time when we are seeking to encourage industry actively to invest. We have in the course of that encouragement agreed to give 100 per cent. allowance in respect of investment expenditure. We now have a situation in which 10 per cent. of the allowance is being treated as a deduction from the relief. The effect is a form of penalty, because companies have carried out their investment expenditure and their relief under the provisions of the Bill is now being reduced. That seems illogical and anomalous. In the circumstances it would seem to be sensible that the paragraph should be removed altogether.

Dr. Gilbert: The effect of Amendment No. 73 is that depreciation allowances should not be disregarded for the purpose of the 10 per cent. reduction. The reason we have included the provisions of paragraph (a) is that it is intended that trading income should normally approximate to commercial profits.
Hon. Members will know that capital allowances, particularly the 100 per cent. allowances, are extremely generous. Whereas it might be urged that the disallowance of the allowances for the purpose of this relief might operate to the detriment of capital intensive industries, equally those industries that are not capital intensive might feel that an arrangement that permitted the relief to be set off against them would prejudice their position.
If the amendment were to be allowed the cost would be so great that my right hon. Friend would probably have to think seriously about the level of 10 per cent. as the offset against the relief. I am sure that that would be a course that would not commend itself to Conservative Members.
The effect of Amendment No. 74 would be to allow basically all interest costs as a charge in arriving at trading income. That would breach the well-known distinction between short-term and long-term interest. My right hon. Friend's relief is addressing itself to the short-term liquidity problem—in other words, to inventory problems. Conservative Members will know that they are traditionally financed by short-term interest, whereas long-term interest is normally of a sort that arises to finance capital expenditure. There is that recognised difference between the two types of interest. If we were to increase the relief that is available by reference to the sort of interest that arises on debenture charges, for example, that would not be in accord with the purposes of the relief being offered by my right hon. Friend. Perhaps I might anticipate an intervention by saying that the perfect solution might be to consider the nature of the loan and to determine whether it was being incorporated to finance stock rather than capital expenditure. I am sure that the hon. Gentleman will recognise that this is rough and ready assistance—we have

made no secret of that—my right hon. Friend is able to provide.
Refinements of this sort would again be time consuming from the taxpayers' point of view. There could be a dispute over the judgment as to what the real purpose of the loan was. That would mean that the taxpayer would be even later in getting his money, which would not be a solution which would commend itself to the hon. Gentleman.

Mr. Hordern: I recognise that these are only temporary provisions and that the Government are to bring forward further provisions in the spring Budget. During the consideration of that Budget will the Chancellor bear in mind, and take into account, these anomalies?

9.0 p.m.

Dr. Gilbert: I do not even have to give the hon. Gentleman an assurance that I will bring his representations to the attention of my right hon. Friend because the Chancellor is here to take note of what has been said. I am sure that he will bear those representations in mind.
Amendment No. 84 appears to be somewhat obscurely drafted. It seems to us to be proposing that the measure of trading income for the purpose of the 10 per cent. reduction should be reduced by the amount of those charges which are royalties paid in respect of patents and certain mining rights from which tax is deducted. Again, it is a situation where the analysis of the charges would be extremely time consuming in relation to the relatively minor benefit that would be involved. I must advise the Committee that I cannot accept the amendment.

Mrs. Thatcher: It seems that my hon. Friends have made an excellent case for both amendments. The Government's answer is not that the situation raises an administrative problem, although on occasions it involves a technicality, but that the main difficulty is one of cost. We have not been told how much the amendments would cost. If the cost would be considerable, the fact is that it is being borne by those who have done most investment. That situation would not be welcomed by most of us. We ask the Financial Secretary, if he can ascertain the cost, to tell us what it is. If not, will he consider the points that have


been made, because we may return to them on Report? We have a great deal of work to do tonight and we are moving on now not because we think we are wrong. We think we are right, as usual.

Dr. Gilbert: The right hon. Lady has invited me to intervene again. I will, of course, always consider points raised by right hon. and hon. Members on the Tory benches. I would be misleading the right hon. Lady if I gave her any indication that Amendment No. 73, which is the crucial one, on which it is not possible to calculate the cost, would be acceptable to the Government on Report.

Mr. Cope: I cannot accept that it is not possible to calculate the cost involved with Amendment No. 73, because it must have been calculated somewhere to arrive at the estimate in the Red Book issued at the time of the Budget. It is an essential part of the calculation which was made in arriving at the figure of £775 million. In the hope that the Financial Secretary will do his best to get in among the figures, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 16 ordered to stand part of the Bill.

Clause 17

CAPITAL TRANSFER TAX

Mr. John Pardoe: I beg to move Amendment No. 43, in page 14, line 37, leave out 'transferred by a chargeable transfer' and insert:
'of a chargeable transfer received by a person ("the transferee")'.
I suppose that at the start of every speech on this clause, and on all the clauses which deal with capital transfer tax, by reason of the motion which the House of Commons passed we should all declare an interest. I imagine that most of us have in some degree an interest in wealth, and I declare it immediately.
The language of the amendment may sound somewhat technical, but it is by no means a technical amendment, because in that choice of curious-sounding phrases lies the stuff of political philosophy. If there is a great divide between politicians in the Committee, it is to be found in the amendment. It goes to the

root of our attitudes to the ownership of property.
I and my colleagues and many other hon. Members on both sides of the Committee believe in popular ownership. There are on the Government side some who believe only in public ownership. My colleagues and I believe, as Hobhouse once said, that private property is an instrument of personality. and that the ownership of private property is to be encouraged in every possible way by the Government and by legislation. The Government believe that private property, while it may be tolerated in strict moderation, is an altogether lower thing than public property. My colleagues and I believe in the wider ownership of property and we advocate measures which would distribute ownership as widely as possible.
In this context, and in other parts of the Bill, the Government appear to prefer the centralisation of property in the ownership of the State. We cannot deny these basic differences. They exist and we had better recognise them if our debate on the amendment and on whether the clause should stand part of the Bill is to be free of hypocrisy and cant.
The first thing we have to ask in discussing the capital transfer tax—it is raised immediately in the amendment—is what exactly is the purpose of such a tax. Presumably the first purpose of any tax is to raise revenue for the Government to run governmental business. That should be the first requirement of all taxes. It cannot be the primary purpose of this tax, however, because the yield is not very great. It is not a greatly more efficient revenue-raiser than is death duty; it is a midly more efficient revenue raiser, or it may be, depending on how it is administered. In 1973–74 death duty yielded £412 million. In 1974–75 it is estimated to yield £380 million. I do not underestimate the importance of such a sum of money for the Government, but it is not a high proportion of total tax revenue.
In 1860 death duties yielded 5 per cent. of central Government revenue. By 1900 the yield had reached 17 per cent. It fell away in the early 1920s, rising again to about 12 per cent. in 1930. It fell to about 3 per cent. in 1947 and it has tailed away slightly since then. It is true that death duties in the United Kingdom


were a more important revenue raiser than they were in most other countries in 1969, as was made clear in the table produced by the Conservative Government in their Green Paper. For instance, in 1969 the revenue amounted to 2·8 per cent. of United Kingdom central Government taxes, 1 per cent. of French central Government taxes, 0·3 per cent. of German central Government taxes and 2·3 per cent. of such taxes in the United States of America.
In this country death duties are also a higher proportion of gross national product. In 1969 the proportion was 0·82 per cent. in the United Kingdom, 0·20 per cent. in France, 0·07 per cent. in Germany, and 0·48 per cent. in the United States. It is significant, however, that nearly all industrial countries, even though the significance of such taxes as revenue-raisers is low in comparison to their need, have some such tax. Admittedly most of them have the tax which accords with the principle I am adumbrating in the amendment rather than the principle which the Government are seeking to advance in their capital transfer tax.
The main criteria of all these taxes cannot be held to be that they raise revenue. Some people have argued in several countries that because the yields from such taxes are so low in proportion to total tax revenue the tax should be scrapped altogether. Yet it has persisted. We must ask why and what are the main reasons for its keeping a place in the tax hierarchy.
The second major reason for taxation is to reduce demand, and certainly that is the major purpose of most taxation today. With most taxes there is a fair correlation between revenue obtained and restriction of demand attained thereby, but with death duties that is not the case. Death duties are a tax on capital and are paid out of capital. They may at some time have been saved for out of income and would have reduced demand. They are not so saved for now. They may reduce income from capital which would otherwise have been spent on consumption.
Death duties may have other modest effects on the beneficiary's ability to consume, but they are not a consumption tax or income tax; they are capital taxes

and have little effect in reducing total demand. Therefore, if revenue raising and demand reduction are not the prime purpose of death duties or of capital transfer tax, we must look elsewhere. It is because of their intended effect on the redistribution of wealth that such taxes have found a place, and continue to keep that place, in the canon of taxation in all the industrial countries I have mentioned, including our own.
The importance that we attach to the redistribution of wealth is a valid judgment, a political judgment, but it is one that most of us accept in some degree or other. My colleagues and I are in favour of reducing the inequalities of wealth, which we regard as being far too great. The Chancellor of the Exchequer nailed his colours to the same mast when he introduced the new tax as a measure of redistributing wealth. That is his intention and it is ours. In the past the Conservative Party campaigned—we do not hear much about it now—with the slogan of a property-owning democracy. That implies some shift in the balance of the distribution of wealth. If it does not imply such a shift, it is a mere slogan signifying nothing. Therefore, the wider distribution of wealth is the united objective of all parties in this place.
If that is the case, it might be thought that we should introduce a tax which goes out of its way to maximise the redistribution of wealth. Why, then, do we not introduce a tax in this Bill which specifically encourages that commonly-accepted objective?

Mr. Patrick Cormack: Is it not better to encourage the growth of new wealth than to destroy what we have?

9.15 p.m.

Mr. Pardoe: I am not setting myself up as Robin Hood, and it is true that it is much better to encourage the redistribution and growth of new wealth, but I hold the view, which is probably shared by hon. Members throughout the Committee, that the present distribution of wealth is not what we would desire and that we should go much further with its redistribution. The effectiveness of the new tax in promoting the more even distribution of wealth will be the most important criterion by which we judge it.
There is no need to go in detail into the present distribution of wealth; we shall do so in the Select Committee on the wealth tax. A Royal Commission is currently engaged on just such a task and we shall have its figures, such as they are, before long. The figures we have are notoriously suspect. Taking all possible "ifs" and "buts" into account, it is probably true that 1 per cent. of adults over 25 own about one-third of all personal wealth in this country and that the wealthiest 5 per cent. own more than half. That is a picture of inequality and, so far as one can compare, a picture which is much worse than in the United States of America. Moreover, our best estimates lead to the conclusion that death duty has not done much to reduce the inequalities in inherited wealth.
It may be said that the reason was the gifts loophole—and that was a crucial weakness. However, although there is good reason to believe that the capital transfer tax, incorporating as it does a tax on gifts by both the quick and the dead, may do something to attack the concentrations of private property in Britain, there is no good reason to suppose that it will redistribute it among a wider section of the community.
The amendment, with consequential amendments to later clauses, would usher in something which could more correctly be called an accessions tax than an inheritance tax. The Government may think, as the Conservative Government did in their Green Paper—they certainly said so baldly—that the alternative to estate duty is an inheritance tax. It is not. It is an accessions tax. That is an important distinction.
An inheritance tax or legacy duty is a great improvement on death duty. The Green Paper "Taxation of Capital on Death: A possible Inheritance Tax in place of Estate Duty", Cmnd. 4930, said on page 15:
The essential difference between an inheritance tax and an estate duty is that, whereas an estate duty is charged by reference to the value of the property left by the deceased, an inheritance tax is concerned with what the beneficiaries get.
Improvement on death duty though it certainly is, an inheritance tax still leaves wide open the problem of gifts among the living. An accessions tax on the other

hand is not only based on the inheritance principle, which I prefer: it is also a gifts tax and it is cumulative over a lifetime. It therefore does everything that the Government's tax would do but it does a whole lot more and it does it a whole lot better. It gives a powerful new incentive to a man to share out his wealth among several beneficiaries.
I make no claim here to support the idea of consanguinity. It does not seem to me that we need get ourselves involved in whether we should distinguish between the tax on a second cousin twice removed or on a widowed aunt. But I think that the capital transfer tax gives no incentive at all to spread wealth around. Indeed, because it now, rightly in our view, includes gifts, it may well encourage hoarding by the older generation when the wealth would be far better and more enterprisingly used by the younger generation.

Mr. A. J. Beith: Does not my hon. Friend agree that its effect is likely to be markedly felt in agriculture, where the older generation of farmers would be reluctant to hand over unless they are the subject of concessions in the Bill?

Mr. Pardoe: That is quite likely to be so. No doubt my hon. Friend will deploy the case on agriculture and forestry on some suitable occasion, on which I hope to be present to hear it. But certainly, in general terms, this is an extremely important qualification that we have to make.
What we are trying to do is to redistribute property, as we have all said. We are advocating a tax which will go a very long way to doing that. It is interesting that various people have made comments about the inequity of this sort of tax which we are now proposing. I have said that it may well discourage the handing on of wealth to the enterprising. I suppose it is true—I certainly hold it to be true—that it is in the nature of the young to be enterprising. Again, generally it is true that it is in the nature of the old not to be enterprising. That is a brave generalisation which no doubt we shall accept, or not accept, depending on our ages. The old may answer that what they lack in enterprise they make up in thrift, and thrift


is no doubt an excellent virtue—which I am not sure the Chancellor supports wholeheartedly. However, without enterprise it is a very poor thing. Indeed, as Keynes once said:
It is enterprise which builds and improves the world's possessions. If enterprise is afoot wealth accumulates, whatever may be happening to thrift, and if enterprise is asleep wealth decays whatever thrift may be doing.

Mr. Tim Renton: I am afraid that the hon. Gentleman has totally lost me on the subject of his accessions tax. I fully agree with him about encouraging enterprise, but is his accessions tax anything else but a capital gains tax in which the tax is paid by the recipient rather than the donor?

Mr. Pardoe: I think it is a capital transfer tax. It is indeed a capital transfer tax that is paid. That is why I said that it does all the things that a capital transfer tax does and that the Government want done, but it does more and it does them rather better. It is perfectly true that one could define this simply as a capital transfer tax, but then we have to define what a capital transfer tax is, and that is not defined in the clause.
Unfortunately, the Government have chosen a form of taxation which can damage enterprise far more than it damages thrift, although it will do some damage to thrift, too.
Estate duty has often been criticised on these grounds over the years. When graduation was introduced, it was criticised on the ground that it was wrong to fix the rate of tax by reference of the wealth of the deceased rather than that of the beneficiary. Sir William Harcourt—no less—was roundly denounced in 1894 by Balfour on this very point.

Mr. Cormack: Quite right too.

Mr. Pardoe: To bring things more closely home to the Government, perhaps what they would be more concerned with is not quotations from Balfour, with which I do not altogether go along for obvious historical reasons, but a quotation from their own guru, Nicholas Kaldor, who said:
Death duty is a periodic levy on property falling on the person or persons who inherit a man's estate. The legal notion that the estate duty is a tax on the deceased is really nonsensical, though it may have had rather

more justification in the old days when people saved specially during their lifetime to cover death duty liabilities on their decease.
He added:
If the incidence of estate duty is really on the legatee and not the testator, the sensible thing is to recognise this and impose a tax on the recipient.
That is what our amendment seeks to do.
In terms of equity, there seems no argument about which is the better principle to follow. Death duty deprives heirs of property they would otherwise have had. They might just as well pay the tax and be done with it. A tax on a beneficiary can far more easily be geared to ability to pay. It is far more flexible in its incidence on different categories of beneficiaries. It is much easier to exempt charities or widows from the incidence of such a tax. However, it is in its power to reduce inequalities of wealth that the accession tax principle scores most heavily over the capital transfer tax.

Mr. Emlyn Hooson: The great problem of death duties, in regard to the proposals put forward both by the Government and by my hon. Friend, is the way in which the tax has become a voluntary tax, however levied, on discretionary trusts and so on. The lawyers have always outwitted the legislature on that point. Regardless of which proposal is carried, how is it proposed to deal with the question of trusts?

Mr. Pardoe: There is, alas, no reason to suppose that an accessions tax would deal with trusts any better than would the capital transfer tax. The Bill contains a large number of clauses which deal with the problem of trusts. We shall be debating those clauses in Committee. I have no doubt that my hon. and learned Friend knows of the activities of his learned friends, who will find loopholes in these clauses just as they have found them in all other tax legislation. The major loophole was that estate duty did not cover gifts. That loophole has now been plugged and will remain plugged whether or not my amendment is passed, and whether or not the Government receive their tax intact.
A tax on the beneficiary, the person who receives the gift or legacy, is much easier for people to understand. It is much more obviously fair and it will be seen to be fair. I do not think we should


cast that factor aside lightly when we consider the principles of taxation.
The interesting point is that the Chancellor of the Exchequer and the Labour Party have changed their minds on the principle of this tax. In Labour's "Programme for Britain" in June 1973 we were promised a progressive capital receipts tax levied on beneficiaries with transfers and with lifetime accumulation. Where is that tax now? Why has it been thrown out? In his Budget speech in March the Chancellor of the Exchequer stated his purpose clearly. He said that his aim was to ensure that the new taxes would be effective instruments for redistributing wealth as a means to greater justice and equality in our society.
It can hardly be denied that in principle my amendment would be more likely to have the desirable effect which the right hon. Gentleman wants than would the tax he has proposed. He cannot deny that a tax on the transferor is a much less effective measure for redistributing wealth than a tax on the transferee. A transferor will pay the same tax whether he gives to the poor or to the rich or whether his gift is widespread or concentrated. A tax on a transferor provides an incentive to give.
What has changed the Chancellor's mind? That is what we should like to know. It is possible that a political doctrine is involved or that the concept of centralised State Socialism requires that he should ditch the principle of redistribution and accept in its place the principle of concentrating all the wealth and property in the hands of the State. However, if administration is the reason, all I can say is that the right hon. Gentleman's tax is a complicated kettle of fish.
There are some very complicated calculations that we shall have to try to explain to our constituents, largely as a result of the impact of the accumulation effect on the transferor provision. I shall not go into the details of the calculations now. No doubt the right hon. Gentleman has been through them in detail himself. But, although it may be argued that his form of tax is simpler administratively and less expensive both on the Revenue and on the taxpayer, my view, based on the only comprehensive study of the accessions tax which has been done in this country, in a

book published by the Institute for Fiscal Studies by Sandford, Willis and Ironside, is that the additional costs and administrative complexities do not outweigh the basic fairness, the basic equity, the justice and the very considerable impact which my amendment would have on the redistribution of private wealth in Britain.

[Sir MYER GALPERN in the Chair]

9.30 p.m.

The Chancellor of the Exchequer (Mr. Denis Healey): The hon. Member for Cornwall, North (Mr. Pardoe) presented his case fairly, and I shall return to some of his general points when we debate the Question "That the clause stand part of the Bill".
The hon. Member made it clear that he approved of the idea of a tax on gifts, for two reasons. The first was to close loopholes in the existing estate duty. The second was to reduce some of the gross inequalities of wealth caused by the failure of the estate duty to operate fairly and successfully at present.
The hon. Gentleman's disagreement with the Government is that he thinks that it would be better if the tax were levied on the donee rather than on the donor. I have some sympathy with his view. I held it myself when I was in Opposition. I was soaked in Sandford before being clobbered by Kaldor. But there are substantial arguments the other way, and it does not require the fanciful imaginings in which the hon. Gentleman indulged to see what they are.
The essence of a donee-based tax compared with a donor-based tax is that it is liable to encourage a wider distribution of wealth to a larger number of beneficiaries. At the same time, the beneficiaries are likely to be within a very narrow range of people—the immediate or more distant relatives of the man concerned—so that all that we are really doing is redistributing these great aggregations of wealth more widely within the family concerned.
The social advantage of doing that is open to argument. I say no more. There are arguments in favour of it; there are other arguments against it. However, there are a great many practical arguments against it which were decisive when I came to consider the general problem of a tax on gifts.
The first is that it is inevitable that if wealth is more widely distributed among a larger number of people before it is taxed the yield of the tax is certain to be reduced. The aggregate taxable wealth is bound to be smaller if it is distributed and any threshold is fixed below which the tax is not levied. Therefore, it is bound to be a lower yield, and the Government did not wish to see that happen.
Secondly, because a larger number of people are concerned as donees—on the hypothesis which the hon. Gentleman and I both accept, that it would mean distribution among a much wider number of people—it is bound to be much more costly to administer, especially if we accept, as the hon. Gentleman and I both do, the principle of lifetime accumulation—in other words, that the gifts received by the donee are added together throughout his whole life. On top of the problem of having a very much larger number of persons subject to the tax, there is also the possibility that they will be receiving donations from a very much larger number of people.
Therefore, the administrative problem of collecting such a tax is infinitely greater than the collection of a donor-based tax. That is a second reason for preferring the donor-based tax. In addition, the donee-based tax would impose an enormous burden of record keeping, not only on those who collected the tax but on those who would have to pay it.
But the decisive argument for me was that if we based our gifts tax on the existing estate duty, which would mean that it would have to be a donor-based tax, there need be no delay in collecting it. On the other hand, if we tried to base it on a donee principle while retaining the estate duty, there would be a great delay in collecting the tax. The risk that during this period of delay there would be massive loss of revenue, due to people trying to make gifts to get under the wire, would have been a real one.
Of course, it would also enormously complicate the collection of estate duty itself, because the Inland Revenue would then have to consider what was happening to the estate in the light of its distribution among a larger number of beneficiaries. In other words, if we had separate estate duty on the present basis, and a gifts tax on a donee basis, we would collect less, it

would take much longer and it would enormously complicate the problems of the Inland Revenue.
Therefore, we concluded that the only sensible way to collect this tax was by marrying it to the existing estate duty on the basis of taxing the donor rather than the donee, in order to avoid the long, complicated and revenue-losing consequences of having a separate system.
Again, it would have been possible in theory to avoid some of these difficulties if we had accepted the proposals made by the Conservative Government in their Green Paper and changed from estate duty to a donee-based inheritance tax. But that would have been a very time-consuming and complicated process, and would, incidentally, have immensely complicated our own deliberations in this House. Again, during the interval the risk of losing potential revenue, through people attempting to order their affairs in advance of the change would have been very serious. For all these reasons, I ask the hon. Member for Cornwall, North to withdraw his amendment. If he does not, I ask the Committee to resist it.

Mr. J. Grimond: I have no desire to delay the Committee unduly on this matter by repeating the arguments so excellently advanced by my hon. Friend the Member for Cornwall, North (Mr. Pardoe). I appreciate the Chancellor of the Exchequer's main argument, which is one of administrative difficulty. But I think that in a matter of such importance we should not be ultimately deterred by such an argument, and in any case suggestions made in the Conservative Government's Green Paper might lead to ameliorating some of the difficulties.
The real difficulty here is that the conventional wisdom about taxation, as I understand it, is that, since we are failing to control the supply of money and credit or cover Government expenditure, we have to use taxation to claw back some of the purchasing power let loose. I have grave doubts about the philosophy. It is not working, because those most heavily taxed are not those who spend. Therefore, this type of tax is not much of a contribution to running the economy. But, for better or worse—I think for worse—taxation appears now to be one of the most important instruments for attempting to run the economy.
Unless our proposals are accepted, I fear that people will not so much hoard as spend. Already, a person with a small amount of savings sees them being heavily eroded. People, including many hon. Members, who have been looking forward to their pension schemes are not going to find it as easy to maintain their standard of living as they thought they would be able to do when they retired—for example, with honour, from long parliamentary service. What they will do is spend their capital. This clause will encourage them to do that.
It has been suggested by another of my hon. Friends—my hon. Friend the Member for the Isle of Ely (Mr. Freud)—that anyone who wants to evade the tax will bring up his children as expert gamblers and will then ensure that he loses his money to them every evening. We need not go so far as to set up backgammon as part of the Welfare State. Nevertheless, I think that this is a very real difficulty.
One of the Chancellor's own advisers—

Mr. Healey: We are always fascinated by the discrepancies in the views expressed among the four or five Members who habitually inhabit the bench from which the right hon. Gentleman speaks. A moment ago his hon. Friend the Member for Cornwall, North (Mr. Pardoe) made the point that his main argument against the tax as we proposed it was that it would encourage hoarding by the aged and not spending.

Mr. Grimond: As the Chancellor well knows, it is not necessary to be absolutely monolithic as a political party. I ask him to look round his own party before making attempts to pluck the mote out of the Liberal Party's eye. It is a small mote.
I agree with my hon. Friend that some people may hoard, but many will spend. The trouble is that, instead of getting redistribution of wealth, we shall add to the general expenditure of the country. I fear that unless the Chancellor accepts this type of amendment he will not get any great redistribution of wealth.
I hope that people will make gifts as widely as possible. I emphasise this point. If this proposal is accepted, exceptions can be made for charities, companies and

other donees. I therefore beg the Chancellor to look at the matter again. I fear that if the tax is simply levied on the donor it will go into the Exchequer and it will have very little to do with the redistribution of wealth, which I agree is highly desirable, if, of course, it is not merely taking wealth away from the rich but actually increasing the wealth of the poor. I sincerely believe that my hon. Friend's proposal would go much further in that direction than the Chancellor's present proposal.
As for the expenditure tax, about which I was about to say a few words when the Chancellor interrupted me, one of his own advisers is a very strong protagonist of this tax. It is not unknown in Socialist circles that there should be considerable anxiety about increasing expenditure throughout the country.
The Chancellor said that gifts, even if widely spread, might be confined to outlying members of one's family. I think that that is better than nothing. It is surely better that people should spread their wealth, even if they give it to second cousins. This is better than that they should spend it or hoard it or employ people such as my hon. and learned Friend the Member for Montgomery (Mr. Hooson) to enable them to evade the tax altogether.

Mr. Tim Renton: The Chancellor argues that administrative difficulties are one reason why the donee should not pay the capital transfer tax. Is it not the case that in all Western European countries that have a gifts tax the burden of paying the tax falls on the donee rather than the donor?

Mr. Healey: The answer is "Yes", but the point is that the European countries concerned have an inheritance-based tax on death. That is why they choose a donee type tax on lifetime gifts. As I have explained, we are in exactly the opposite position.

Mr. Ridley: The justification for the tax, as I understand it, derives from the social contract. Often we hear the Government saying that since they have carried out their side of the social contract the trade unions should carry out theirs.
The trade unions are not carrying out their side of the social contract. The social contract is not worth paper that


it is not written on. So it seems to me that we should ask very seriously whether a tax hurriedly put together without due thought and brought in with the considerations in mind which the Chancellor has just unblushingly admitted is something which the House of Commons should give approval to at all. He admitted that the reasons why he preferred the tax to be on the donor rather than on the donee were purely administrative, short-term and of no great principle. The objections put forward by the hon. Member for Cornwall, North (Mr. Pardoe) and the right hon. Member for Orkney and Shetland (Mr. Grimond) seemed to me to be objections of substance which the Government should be prepared to counter.
9.45 p.m.
If I may go through the reasons given by the Chancellor, he said that he was not interested in redistribution of wealth because it would go only to a small circle of people. He was more interested in taking the wealth away rather than in redistributing it among a circle of people who were not really of great interest to him. I suppose they are not "useful" people, in current parlance. He does not realise that society changes, that the more wealth can be spread the more widely it will end up.
These proposals are not proposals for the redistribution of wealth. They are proposals for the confiscation of wealth. If this tax had anything to do with the redistribution of wealth I would find many attractive features in it, but it has not. Therefore, it immediately appears that the tax is one which is designed not to redistribute but to confiscate and destroy enterprise wherever it may be found, whether it be in forestry, agriculture or private companies or other business where personal individual capital is provided. It is impossible under the tax proposed for many of these enterprises to survive.
Secondly and more important, the Chancellor said that it would involve less administrative cost to collect the tax from the donor than from the donee, if we switched to the sort of tax which the Liberal Party has just advocated. Maybe it would. That may be the case. But is tax from now on to be levied on the basis that it is easier to collect and not on the

basis that it is fairer? Has every idea of objectivity and fairness been thrown out of the window? Is the Chancellor going to design his taxes on the basis that they are easiest to collect?
We heard earlier from the Financial Secretary that he was not prepared to let small businesses have immediate relief on corporation tax because it was too difficult to arrange. Therefore, on two occasions we have had an argument from the Treasury Bench that the tax has been designed purely for administrative convenience and to hell with the social and economic effects which it may have.
Thirdly, the right hon. Gentleman said that the tax would be slower to collect. If the Chancellor is thinking in terms of economic revenue, if he is thinking of getting in money, he would not have brought in this tax at all. He has already admitted that the revenue yield of this tax is less than he would get if he left matters as they are. The present estate duty will bring in more than the tax which he is proposing in Clause 17. If he is simply interested in getting in money he will be wise not to bring in this tax at all.
Is the Chancellor really suggesting that this is a revenue tax, a tax designed to reduce the deficit upon which the Government are operating—£6,300 million did we hear him say on 12th November? Now he is releasing £200 million by bringing in this particular tax instead of leaving the estate duty tax alone because he admits that it produces less.

Sir John Hall: Will my hon. Friend bear in mind that in the long term the yield from this tax will be greater than that from the present estate duty?

Mr. Ridley: Yes, I could not agree more, but the Chancellor has just said that the advantage of levying the tax on the donor is that it is quicker to collect the revenue in that fashion. He cannot plead that this tax will in the long run produce more, because he has admitted that in the short run it will produce less. Therefore, the argument he has put forward is fallacious, and it would be very much better if the Government were to take away the whole tax and work out the effects it will have in terms of redistribution of wealth, its effect on the private


sector of the economy and its effect upon the real reason for the tax.
The real reason for it is to meet the demands of many Labour Members that it should be designed for spiteful motives and out of bitterness towards the better off. It is an envy tax, a jealousy tax, a bitterness levy. We should therefore consider to what extent it will meet the wishes of Labour Members. As the right hon. Member for Orkney and Shetland said, the cause of the envy, the bitterness and the jealousy is excessive spending, not excessive accretions of wealth. The effect of the tax will be to increase spending, because a man who knows that he will be leaving half or two-thirds of a vast fortune to the Chancellor when he dies will be encouraged to spend it. A son who knows that the farm, estate or business which he will inherit is to be broken up when he inherits it will think it more advantageous to him to spend rather than to save and invest.
The effect of this tax will be to accelerate and exacerbate the evil which caused it to be brought in. It has been ill thought out, and it would be better for the Chancellor not to be so keen to bring in taxes to placate the social contract, which has long since broken down, but to take the tax away, do his homework and come back with it properly worked out instead of trying to propose such nonsense to the House.

Mr. Pardoe: The Chancellor said that he had previously been soaked in Sandford before he had been clobbered by Kaldor. I wish he had been clobbered by Kaldor on this tax, because I believe that Kaldor got it right. In this instance he is right, and when the two sages that he and I follow are in agreement, it would be much better to accept their agreement. Since the Chancellor reached his present position he has been tricked by the Treasury and wrecked by the Revenue. He said that the tax was liable to encourage a wider distribution of wealth, and that was rather curious phraseology. What a terrible thing to happen! How disastrous that would be! I suppose that it would be counter-revolutionary. He said that it would be to a rather narrow range of beneficiaries, with which my right hon. Friend the Member for Orkney and Shetland (Mr. Grimond) has dealt, but, of course, if they are rich it does not

matter whether they are closely related for social purposes. If they are rich the tax will bite heavily upon them. If they are poor surely the tax should not bite upon them, and it will not. I admit that they may not all be Labour voters or trade union members but they are citizens of this country, and there seems no reason to suppose that we should not, therefore, encourage the distribution of wealth among them.
The Chancellor said that wealth was bound to be reduced if the tax was more widely spread. Of course, that is true, but that is the case with any tax of which we seek to widen the base. I imagine that the Chancellor is constantly trying to widen the base of his taxes, so I do not suppose that that is an important factor.
The Chancellor said that wealth would be reduced because there are so many taxpayers, but it does not matter because the total revenue from the tax is small by comparison with his total needs. Therefore, he should be able to consider social purposes far more than he is considering the revenue purposes.
It is all very well for the Chancellor to tell us that it is the administrative inconvenience in the tax collection that causes him to opt for his form of tax rather than ours, but if he looks into it he will find that the administrative inconvenience on the part of the taxpayer is all in favour of my argument rather than his. The Chancellor knows perfectly well than when the cumulation principle is applied to the fact that he now wants to make it a tax on donor rather than donee, that will lead to the most unholy complications.
It is easy enough if a constituent leaves £16,000 and sends his son a letter saying "I want to give you a gift of £16,000. The tax on that will be 10 per cent. on the excess over £15,000, which is £100. I have deducted that £100 tax, and am sending you a cheque for £15,900." There are then no problems. But what happens if that constituent tells his son "I want to give you a gift of £16,000, and I enclose my cheque herewith. You need not worry about the tax. I have looked after it"? The rational constituent and his son may well conclude that the tax is still £100, but it is nothing of the sort. The whole complexity of the Chancellor's


tax begins to bite here. First, the constituent must take account of the extra £100 tax, the 10 per cent. on the £1,000. That means that he has given a gift of £16,100. Then he has to take 10 per cent. of £100, and 10 per cent. of 10 per cent. of £100. In the end, it works out at 11·11 per cent.
Over the figure of £20,000 the tax must be £500 plus fifteen-eighty-fifths, the excess over £19,500, which is 16·75 per cent. I defy the Chancellor or any of his successors to write a Treasury letter that we can send to our constituents explaining that sort of complexity.
That is why, when the right hon. Gentleman talks about administrative simplicity, I say that he should consider the simplicity for the taxpayer and not just for the Revenue. I do not believe that he has made his case on administrative

Division No. 67.]
AYES
[9.58 p.m.


Bain, Mrs Margaret
Hall, Sir John
Ridsdale, Julian


Beith, A. J.
Hawkins, Paul
Ross, Stephen (Isle of Wight)


Bell, Ronald
Henderson, Douglas
Rost, Peter (SE Derbyshire)


Biffen, John
Hooson, Emlyn
Shaw, Michael (Scarborough)


Body, Richard
Howell Ralph (North Norfolk)
Skeet, T. H. H.


Brittan, Leon
Howells, Geraint (Cardigan)
Spence, John


Cormack, Patrick
Irving, Charles (Cheltenham)
Spicer, Jim (W Dorset)


Corrie, John
King, Evelyn (South Dorset)
Stanbrook, Ivor


Costain, A. P.
Lamont, Norman
Stanley, John


Crawford, Douglas
Langford-Holt, Sir John
Stewart, Donald (Western Isles)


Eden, Rt Hon Sir John
Lawson, Nigel
Stewart, Ian (Hitchin)


Evans, Gwynfor (Carmarthen)
Lloyd, Ian
Thomas, Dafydd (Merioneth)


Ewing, Mrs Winifred (Moray)
MacCormick, Iain
Thompson, George


Fairgrieve, Russell
McCrindle, Robert
Thorpe, Rt Hon Jeremy (N Devon)


Fell, Anthony
MacGregor, John
Viggers, Peter


Fraser, Rt Hon H. (Stafford &amp; St)
Macmillan, Rt Hon M. (Farnham)
Walker-Smith, Rt Hon Sir Derek


Freud Clement
McNair-Wilson, P. (New Forest)
Watt, Hamish


Fry, Peter
Mitchell, David (Basingstoke)
Welsh, Andrew


Galbraith, Hon T. G. D.
Morgan, Geraint
Wigley, Dafydd


Gardner, Edward (S Fylde)
Morris, Michael (Northampton S)
Wilson, Gordon (Dundee E)


Glyn, Dr Alan
Mudd, David
Winterton, Nicholas


Goodhew, Victor
Penhaligon, David
Young, Sir G. (Ealing, Acton)


Gow, Ian (Eastbourne)
Price, David (Eastleigh)



Gower, Sir Raymond (Barry)
Reid, George
TELLERS FOR THE AYES


Grimond, Rt Hon J.
Renton, Tim (Mid-Sussex)
Mr. Cyril Smith and


Grist, Ian
Rhys Williams, Sir Brandon
Mr. John Pardoe.


Grylls, Michael
Ridley, Hon Nicholas





NOES


Abse, Leo
Booth, Albert
Cartwright, John


Allaun, Frank
Boothroyd, Miss Betty
Castle, Rt Hon Barbara


Anderson, Donald
Bottomley, Rt Hon Arthur
Clemitson, Ivor


Archer, Peter
Boyden, James (Bish Auck)
Cocks, Michael (Bristol S)


Armstrong, Ernest
Bradley, Tom
Coleman, Donald


Ashley, Jack
Bray, Dr Jeremy
Colquhoun, Mrs Maureen


Ashton, Joe
Brown, Hugh D. (Provan)
Conlan, Bernard


Atkins, Ronald (Preston N)
Buchan, Norman
Cook, Robin F. (Edin C)


Atkinson, Norman
Buchanan, Richard
Corbett, Robin


Barnett, Guy (Greenwich)
Butler, Mrs Joyce (Wood Green)
Craigen, J. M. (Maryhill)


Barnett, Rt Hon Joel
Callaghan, Rt Hon J. (Cardiff SE)
Crosland, Rt Hon Anthony


Bates, Alf
Callaghan, Jim (Middleton &amp; P)
Cryer, Bob


Bean, R. E.
Campbell, Ian
Cunningham, G. (Islington S)


Benn, Rt Hon Anthony Wedgwood
Canavan, Dennis
Cunningham, Dr J. (Whiteh)


Bennett, Andrew (Stockport N)
Cant, R. B.
Dalyell, Tam


Bidwell, Sydney
Carmichael, Neil
Davidson, Arthur


Blenkinsop, Arthur
Carter, Ray
Davies, Bryan (Enfield N)


Boardman, H.
Carter-Jones, Lewis
Davies, Denzil (Llanelli)

simplicity. I think that the case he really believes is the one he did not deploy. His is a political case. What has changed his mind since he was in opposition is the power of the trade union vote behind him. It has to do with the social contract. It is appeasement of forces within our society that Governments should not care too much about.

Therefore, I intend to press the amendment to a vote because it is fundamental to the tax. Whatever the Chancellor may have said about his and my agreement on the basic principles of a gifts tax, the tax without the amendment is a rotten tax and my colleagues and I will oppose it as hard as we can.

Question put, That the amendment be made:—

The Committee divided: Ayes 76, Noes 259.

Davies, Ifor (Gower)
John, Brynmor
Richardson, Miss Jo


Davis, Clinton (Hackney C)
Johnson, James (Hull West)
Roberts, Gwilym (Cannock)


Deakins, Eric
Johnson, Walter (Derby S)
Robertson, John (Paisley)


Dean, Joseph (Leeds West)
Jones, Alec (Rhondda)
Roderick, Caerwyn


de Freitas, Rt Hon Sir Geoffrey
Jones, Barry (East Flint)
Rodgers, George (Chorley)


Delargy, Hugh
Judd, Frank
Rodgers, William (Stockton)


Dell, Rt Hon Edmund
Kaufman, Gerald
Rooker, J. W.


Dempsey, James
Kelley, Richard
Ross, Rt Hon W. (Kilmarnock)


Doig, Peter
Kerr, Russell
Rowlands, Ted


Dormand, J. D.
Kilroy-Silk, Robert
Ryman, John


Douglas-Mann, Bruce
Kinnock, Neil
Sandelson, Neville


Duffy, A. E. P.
Lambie, David
Sedgemore, Brian


Dunn, James A.
Lamborn, Harry
Selby, Harry


Dunnett, Jack
Lamond, James
Shaw, Arnold (Ilford South)


Dunwoody Mrs. Gwyneth
Latham, Arthur (Paddington)
Sheldon, Robert (Ashton-u-Lyne)


Eadie, Alex
Leadbitter, Ted
Shore, Rt Hon Peter


Edelman, Maurice
Lee, John
Short, Rt Hon E. (Newcasle C)


Edge, Geoff
Lever, Rt Hon Harold
Short, Mrs Renée (Wolv NE)


Edwards, Robert (Wolv SE)
Lewis, Ron (Carlisle)
Silkin, Rt Hon S. C. (Dulwich)


Ellis, Tom (Wrexham)
Litterick, Tom
Sillars, James


English, Michael
Lomas, Kenneth
Silverman, Julius


Evans, Ioan (Aberdare)
Loyden, Eddie
Skinner, Dennis


Evans, John (Newton)
Luard, Evan
Smith, John (N Lanarkshire)


Ewing, Harry (Stirling)
Lyon, Alexander (York)
Snape, Peter


Fernyhough, Rt Hon E.
McElhone, Frank
Spriggs, Leslie


Flannery, Martin
McGuire, Michael (Ince)
Stallard, A. W.


Fletcher, Ted (Darlington)
Mackenzie, Gregor
Stewart, Rt Hn M. (Fulham)


Foot, Rt Hon Michael
Mackintosh, John P.
Stoddart, David


Ford, Ben
Maclennan, Robert
Stott, Roger


Forrester, John
McMillan, Tom (Glasgow C)
Strauss, Rt Hon G. R.


Fowler, Gerald (The Wrekin)
Madden, Max
Summerskill, Hon Dr Shirley


Fraser, John (Lambeth, N'w'd)
Magee, Bryan
Taylor, Mrs Ann (Bolton W)


Freeson, Reginald
Mahon, Simon
Thomas, Jeffrey (Abertillery)


Garrett, John (Norwich S)
Marks, Kenneth
Thomas, Mike (Newcastle E)


Garrett, W. E. (Wallsend)
Marquand, David
Thomas, Ron (Bristol NW)


George, Bruce
Marshall, Dr Edmund (Goole)
Thorne, Stan (Preston South)


Gilbert, Dr John
Marshall, Jim (Leicester S)
Tierney, Sydney


Ginsburg, David
Mason, Rt Hon Roy
Tinn, James


Golding John
Meacher, Michael
Tomlinson, John


Gould, Bryan
Mellish, Rt Hon Robert
Varley, Rt Hon Eric G.


Gourlay, Harry
Mikardo, Ian
Wainwright, Edwin (Dearne V)


Graham, Ted
Millan, Bruce
Walker, Harold (Doncaster)


Grocott, Bruce
Miller, Dr M. S. (E. Kilbride)
Walker, Terry (Kingswood)


Hamilton, James (Bothwell)
Miller, Mrs Millie (Ilford N)
Ward, Michael


Hamilton, W. W. (Central Fife)
Mitchell, R. C. (Soton, Itchen)
Watkinson, John


Hamling, William
Molloy, William
Weetch, Ken


Hardy, Peter
Moonman, Eric
Weitzman, David


Harrison, Walter (Wakefield)
Morris, Alfred (Wythenshawe)
Wellbeloved, James


Hart, Rt Hon Judith
Morris, Charles R. (Openshaw)
White, Frank R. (Bury)


Hattersley, Rt Hon Roy
Mulley, Rt Hon Frederick
White, James (Pollock)


Hatton, Frank
Murray, Ronald King
Whitehead, Phillip


Hayman, Mrs Helene
Newens, Stanley
Whitlock, William


Healey, Rt Hon Denis
Noble, Mike
Willey, Rt Hon Frederick


Heffer Eric S.
Ogden, Eric
Williams, Alan (Swansea W)


Hooley, Frank
O'Halloran, Michael
Williams, Alan Lee (Hornchurch)


Horam, John
Orbach, Maurice
Williams, Rt Hon Shirley (Hertford)


Hoyle, Douglas (Nelson)
Ovenden, John
Williams, W. T. (Warrington)


Hughes, Rt Hon C. (Anglesey)
Owen, Dr David
Wilson, Alexander (Hamilton)


Hughes, Mark (Durham)
Padley, Walter
Wilson, William (Coventry SE)


Hughes, Robert (Aberdeen N)
Palmer, Arthur
Wise, Mrs Audrey


Hughes, Roy (Newport)
Park, George
Woodall, Alec


Hunter, Adam
Parker, John
Woof, Robert


Irvine, Rt Hon Sir A. (Edge Hill)
Parry, Robert
Wrigglesworth, Ian


Irving, Rt Hon S. (Dartford)
Pavitt, Laurie
Young, David (Bolton E)


Jackson, Colin (Brighouse)
Perry, Ernest



Jackson, Miss M. (Lincoln)
Phipps, Dr Colin
TELLERS FOR THE NOES:


Janner, Greville
Prentice, Rt Hon Reg
Mr. Joseph Harper and


Jay, Rt Hon Douglas
Price, C. (Lewisham W)
Mr. John Ellis.


Jeger, Mrs Lena
Price, William (Rugby)



Jenkins, Rt Hon Roy (Stechford)
Rees, Rt Hon Merlyn (Leeds S)



Question accordingly negatived.

Question proposed, That the clause stand part of the Bill.

Mr. Healey: The first and overriding purpose of the capital transfer tax, as I said when we were debating Amendment No. 43, is to make estate duty an effective tax. I doubt whether any hon. Member could really object to making effective a tax which is universally agreed to be fair, which has been on the statute book for 80 years and yet which has been avoided on a colossal and increasing scale, first by lifetime gifts and latterly also by various types of trust.
The estate duty has come to be regarded more or less universally as a voluntary or avoidable tax. The Guardian reported recently that an unnamed person in the City had said that estate duty was paid by no one with a head on his shoulders and an accountant within calling distance. I imagine that we are all well aware that the tax correspondents of the leading British newspapers make a steady annual income by repeating last year's article on how to avoid the estate duty, rather in the same way as gardening correspondents produce their annual article on winter colour in the garden.
We on this side of the Committee believe that the redistribution of wealth is as important as is the redistribution of income, and we believe that it is especially important at a time when equality of sacrifice is an essential precondition of the unity without which the nation cannot surmount its problems.
Estate duty was introduced before the twentieth century began, to prevent vast aggregations of inherited wealth being passed on undiminished from generation to generation, but it has been generally avoided by rich men who put their wealth into trusts or gave it away to their children before they died. The capital transfer tax—as the hon. Member for Cornwall, North (Mr. Pardoe) accepted—has as its main purpose to make the estate duty not a voluntary tax but a compulsory tax, as it was always intended to be.
The Committee is familiar with the details of the tax from reading the Bill and from the short exchange during the Second Reading debate, but I want to remind the Committee of some of the facts which are easily forgotten. First,

the tax starts at the same level as does estate duty—that is, £15,000—and only a small minority of the citizens of this country ever have £15,000 to give away either in life or when they die. But the rates at which the new tax will be levied are substantially lower than the rates at which the estate duty was levied.
For the first time, in levying the new tax it is proposed to exempt all transfers between man and wife, which I hope will be welcomed on both sides of the Committee. That will be of immense benefit to widows who suffer substantially from the present estate duty.

Mr. Lawson: The Chancellor might at least get the facts right. It simply is not the case that the rates of the capital transfer tax are less than those of the estate duty. Does not the right hon. Gentleman agree that with the grossing up which has to be done for the tax the level of 100 per cent. is reached at about £70,000, and that the rate on the top slice goes up to 300 per cent. whereas the rate on the top slice for estate duty is 75 per cent?

Mr. Healey: No, Sir, I do not. Because the rates are lower and because we give exemption to transfers between spouses, in the first year or two the yield from the tax will be lower than the yield from estate duty, although we are removing some of the reliefs which are offered on the estate duty.
Very few members of the Committee would dare, at least in public, to oppose in principle a tax on lifetime gifts as a necessary complement to a tax on transfers at death, although many might well wish to oppose it in private, and hundreds have evaded it for decades by making use of the loopholes available in the existing estate duty provisions. Such a tax has operated for many years in all countries of Western Europe and in the main Commonwealth countries.
The objections which have been put are objections of detail. The Government are prepared to consider those objections and, if they are found to be justified, to introduce necessary amendments to the tax in Committee or on Report. We shall debate some of these


details at length at later stages in our consideration of the Bill.
10.15 p.m.
I should like to make two general points. First, the major reliefs in the tax—the relief on spouses and the lower rates—are possible only because certain earlier reliefs have been withdrawn—for example, that on the agricultural value of land. Secondly, the general principle behind the tax is that all assets should be equally subject to tax. If we exempt some, we make it unfair to the remainder and we are liable to produce economic distortions. [HON. MEMBERS: "Oh".] Nothing showed this more clearly than what happened as a result of the exemptions under the existing estate duty.
I do not think the Opposition would deny that a major factor in producing the terrifying escalation of the cost of agricultural land has been the tax relief available to it under the old estate duty. The same is true of forests. We shall be discussing woodlands and forests on many occasions later in our debates, but the fact is that in recent years half of the planting of new trees in this country has been done by the Government. Of the other half, four-fifths has been done through investment companies as a hedge against inflation. There is no question whatever that the relief given to woodlands has been a major reason for the extraordinary distortion in the planting of trees in recent years.

Mr. Beith: Will the Chancellor say which group has been responsible for planting hardwoods? Is it the Forestry Commission, the investment trusts or a third group?

Mr. Healey: The bulk has been done by the Forestry Commission, as I understand the position. [HON. MEMBERS: "No."] A lot has been done by the private individual, but the planting through investment trusts has been overwhelmingly in soft woods. I notice that nobody is arguing against that point.

Mr. Maurice Macmillan: Will the right hon. Gentleman say whether I am correct in assuming that the cost of planting trees is roughly the same when undertaken by public expenditure through the Forestry Commission as when

it is undertaken by private planters? In other words, is not the cost of reafforestation the same whether undertaken by the private owner or by the Government?

Mr. Healey: It depends on the amount of grants available to the individual—[Interruption.] That is bound to be the case.

Mr. Charles Morrison: The implication of what the Chancellor said about planting, either by private owners or the Forestry Commission, was that he would have preferred it had the trees not been planted. Will he confirm that that is so?

Mr. Healey: Nobody has argued more strongly than Conservative Members that it is a mistake to distort economic decisions by offering special incentives either through tax relief or other means. There is no question whatever that these two examples of decisions taken—[Interruption.] Investment can be moved into any area one wishes if one gives enormous tax advantages to that area. But many other parts of our economy require investment far more than forests but do not get the advantage of the special tax reliefs which have been offered to woodlands—[An HON. MEMBER: "Give an example."] Investment in the engineering industry is a very good example. The hon. Member should know that for the whole of the last two years our exports have been frustrated by lack of investment in the engineering industry due to failure to invest over the previous years.
The right hon. Member for Finchley (Mrs. Thatcher) raised a number of points on Second Reading and it might be convenient if I deal with some now, because she will no doubt wish to return to some of them.

Mr. Ridley: Is the right hon. Gentleman aware that 80 per cent. of the hardwoods planted have been planted by the private sector? Why does he not know this? If he seeks to legislate on forestry taxation, should he not get his facts right before coming to the Committee?

Mr. Healey: I do not accept the figure that the hon. Gentleman has given me.
The right hon. Lady—

Mr. Peter Hardy: My right hon. Friend will be aware, as the


hon. Member for Cirencester and Tewkesbury (Mr. Ridley) plainly is not, that while 87 per cent. of the hardwoods in this country are owned by the private sector, a large proportion were planted not merely before the hon. Gentleman and I were born but in the time of the Napoleonic wars, and that one can hardly use that fact as an argument at the present time?

Mr. Healey: Exactly. The question that I was asked was about plantings and not about ownership.

Several Hon. Members: rose—

The Deputy Chairman: Order. Hon. Members know that if the hon. Member who has the Floor does not give way, they must resume their seats.

Mr. Healey: Thank you, Sir Myer. If I may now revert to the right hon. Lady, I want to deal with some of the points that she made on Second Reading.

Mrs. Thatcher: May I revert to forestry? I have a brief here from the Forestry Committee of Great Britain which says:
The private sector (i) provided in 1973 57 per cent of all the timber grown in Great Britain. (ii) embraces 86 per cent. of the country's broad-leaved (hardwood) woodland.

Mr. Healey: Granted, but when were they planted, may I ask? In prehistoric times, in many cases.
If I may revert once again to the right hon. Lady—

Mr. Cormack: Bearing in mind that it is true that many of these trees were planted 150 years ago, how many more hardwood trees will be planted if they are to be taxed five or six times during their growth?

Mr. Healey: We shall return at length—[HON. MEMBERS: "Ah."] We are embarking on a prolonged series of debates on the whole of the capital transfer tax in which we shall be discussing seriatim a series of amendments, many of which are concerned with this matter. If hon. Members want to conduct the whole of the rest of our proceedings on the Committee stage of the Bill tonight, we are of course at their disposal, but if they want a general debate on the capital transfer tax, I suggest that they allow me to deal with the points

raised by the right hon. Lady on Second Reading.

Mrs. Winifred Ewing: Would the right hon. Gentleman give way?

Mr. Healey: With the greatest pleasure.

Mrs. Ewing: Does the right hon. Gentleman agree that in Scotland forestry is a crop? It is not an amenity and it is not a cover for shooting. It is a crop, and it is not hardwood but softwood. It grows two and a half times faster in Scotland than it grows in Scandinavia, and there are millions of acres of uplands which are put to no use in Scotland. The Labour Party, when I was previously a Member of Parliament, prevented the Forestry Commission from acquiring one acre of land from landlords and so on, by compulsory purchase. The proportion of 60–40 or 50–50 between the private and the public sector is not the fault of those who work in the jobs there, whose communities depend on them. It is the fault of successive Westminster Governments who would not allow the Forestry Commission, in the public sector, to acquire the land to plant public trees. The position—

The Deputy Chairman: Order. The hon. Member for Moray and Nairn (Mrs. Ewing) must not use an intervention to make a speech which she could make later.

Mrs. Ewing: I thought that the right hon. Gentleman the Chancellor was giving me the leeway to carry on.

Mr. Healey: In so far as I am able to trace the relevance of the hon. Lady's intervention to the matter at issue, I think I should be right in concluding that she is in favour of encouraging more planting of softwood by the public sector, and in that respect there is nothing between us.

Mrs. Ewing: But the right hon. Gentleman has not done it.

Mr. Healey: If I may revert once again to the right hon. Member for Finchley, the basic point I should like to put to her is this.

Mr. John Gorst: Will the Chancellor give way?

Mr. Healey: No.
Under the capital transfer tax, people of small and medium wealth will be a good deal better off than they are now, because spouses will get reliefs which they never had previously and they will benefit from the lower rates. But people with large wealth will be worse off than previously because the means by which they have avoided estate duty for decades will be removed. It is from them that the complaints are coming, and it is they whom right hon. and hon. Members of the Opposition are fundamentally representing.—[HON. MEMBERS: "Cheap."] No. The overwhelming majority of the men and women in this country are not affected in any way by either estate duty or the new tax. It affects lifetime accumulations of £15,000. It permits annual gifts of £1,000 on top of these lifetime accumulations of £15,000. It exempts gifts out of income, and it gives very generous relief to wedding gifts.
But in some cases, as the right hon. Lady has said, despite the relief for spouses the amount left on the second death will be greater than it was under estate duty on the first death. But with respect to what the right hon. Lady said the other day when she suggested that the only people who paid less on the second death were people with wealth over £1 million, that is not the case. It depends entirely on the circumstances concerned.
The really important point about the new tax in this regard is that on average—this may be a surprising statistic to hon. Members on both sides of the House—widows outlive their husbands by 18 years. During the whole of that period of 18 years widows will be having the benefit of the relief under the new tax which they were denied under the old tax. I hope that hon. Members on both sides of the House will bear that in mind if they propose to vote against this tax.

Mr. Daniel Awdry: Would the widow get that relief if she were granted a life interest in the entire estate and not given the estate entirely? Assuming that a husband gives a life interest in the whole of his estate to his wife and the children and then dies, will his widow who has the life interest get the relief to which the right hon. Gentleman refers?

Mr. Healey: I confess that I am not certain on that point. We shall be dealing with it under trusts—[Interruption.] Thanks to the logistical system and the wonders of modern science, I am now able to answer. Yes.
10.30 p.m.
I make no apology for admitting that hon. Members may ask me a large number of questions on these extremely complicated matters, particularly concerning trusts, which I shall not be able to answer without advice.

Mr. Hugh Dykes: The Committee is extremely concerned about this matter. The right hon. Gentleman is finding it difficult to see the wood for the trees in regard to a number of matters. He has already revealed a glaring gap in his knowledge about hardwood plantations. After some debate he pretended to agree, but now he has revealed that he is unable to answer the question put by my hon. Friend. Why does not the Chancellor now reconsider this important tax and come back to the Committee when he has something to propose?

Mr. Healey: I regret to say that that type of intervention does not encourage me to give way to further interventions.
The right hon. Lady complained that on the death of the second spouse, in cases of wealth of under £1 million, the tax would be higher than under the old estate duty. That is not the case. If she wishes me to give details of how circumstances alter cases at lower levels I shall be glad to do so. The relief given to spouses under the new tax will enable the average widow to enjoy the benefit of a higher living standard for 18 years, on average, which was denied under the previous tax. I hope that the right hon. Lady, if she is persuaded by some of her hon. Friends on the back benches to oppose this tax, will bear that in mind. We shall bear that in mind, if that is the position which the Opposition propose to adopt.
The right hon. Lady suggested that no distinction is made under the new tax between children and other persons. With estate duty no distinction was made between children and other persons with regard to the duty levied at death. That has never been the practice since the


introduction of estate duty. There is no special reason why it should be the practice. The right hon. Lady also raised the question of whether we should index the levels at which this tax was levied. We propose to adjust thresholds from time to time, as we do with other taxes. The right hon. Lady is a keen student of these matters and knows how far-reaching a decision on indexation may be. I confess I am a little surprised that she should choose the capital transfer tax as the one tax in respect of which we should introduce indexing. A decision to index the tax system, as is the decision to index savings, is a matter of the greatest moment. No Government would propose to introduce indexation into the tax system with regard to capital taxes while leaving direct taxes untouched.—[HON. MEMBERS: "Why not?"]—Why not? I shall tell the Opposition. If it is ever proposed to introduce indexing, I believe it should be introduced for the benefit of the overwhelming majority of taxpayers and not for the benefit of the tiny minority who will be subject to this tax.

Mr. Gorst: I ask the right hon. Gentleman to reconsider that last statement. Has he no concern for the middle income groups?

Mr. Healey: Yes, Sir, and that is the reason why we have reduced the rates in this tax. If the hon. Member for Hendon, North (Mr. Gorst) were really keen to help the middle classes, he would recognise that this tax will help them much more than the estate duty that it replaces. But, if by "middle classes", he means the one person out of 10,000 who will pay higher taxes under the tax, it is an odd definition of "middle", but it is a very common one on the Opposition benches.

Mr. Reginald Eyre: Has the right hon. Gentleman thought about the devastating effect of his proposals on the small engineering business in the Midlands? Let us suppose that a man has built up such a business in his lifetime, that he has a son intent on following him in the business, and that its value is £70,000 or £80,000. With a rate of duty of 40 per cent., 45 per cent. or 50 per cent., grossed up under the right hon. Gentleman's proposals, and with no chance of replacing the working

capital, that will be extremely damaging to the economy and to the people employed in that business. I ask the right hon. Gentleman to bear that in mind.

Mr. Healey: I certainly will bear it in mind, and I shall come to the hon. Gentleman's point later—

Mr. Eyre: Answer now.

Mr. Healey: The hon. Gentleman must not be so insolent—[HON. MEMBERS: "Oh!"] I shall make my speech in my own way—[Interruption.] I regard it as a matter of order and courtesy to deal with the points raised by the right hon. Member for Finchley (Mrs. Thatcher)—

Mr. Stephen Hastings: On a point of order, Sir Myer. Is it in order for the Chancellor of the Exchequer to accuse my hon. Friend the Member for Birmingham, Hall Green (Mr. Eyre) of insolence simply because he made a justifiable intervention? Will you now rule upon that?

Mr. Healey: rose—

The Deputy Chairman (Sir Myer Galpern): Order. I think that the Chancellor of the Exchequer has enough on his plate. He should leave some to the Chair.
I shall rule on the point of order raised by the hon. Member for Mid-Bedfordshire (Mr. Hastings). In my opinion, what the Chancellor of the Exchequer said was not unparliamentary.

Mr. Healey: With respect to the hon. Member for Birmingham, Hall Green (Mr. Eyre), he is a little over-excited. The reason why I used the word that I did is that I was seeking to deal with the matters raised by the right hon. Member for Finchley in the order in which she raised them on Second Reading. I propose to continue making my speech in my own way, and I do not propose to accept instructions on this matter from the hon. Member for Hall Green.

Mr. Dykes: I hestitate to prolong these exchanges, but a very important matter has been raised. I am sure that my right hon. Friend the Member for Finchley (Mrs. Thatcher) will agree that my hon. Friend the Member for Hall Green has just raised a very important matter about many thousands of businesses which have been built up over many years. The right


hon. Gentleman seeks to brush it aside by saying that he may deal with it later. Why not deal with it now, as my hon. Friend asked?

Mr. Healey: I propose to deal with it in my own way. If the hon. Member for Hall Green does not like it, I am afraid that he must lump it.
The next matter raised by the right hon. Member for Finchley was her point 4, after her proposal that we should start indexing in the tax system by concentrating on one of the capital taxes, and it concerned her objection to the quick sucession relief. I have considered this carefully, and I would not absolutely rule out that it might be wise to restore that relief. But I ask the right hon. Lady to accept that the concession we have made for spouses is far more important to those she seeks to help than continuation of the relief she asks me to continue.
I turn now to the point made, not only by the right hon. Lady but by others, that some form of double taxation was involved because some persons would be paying both capital gains tax and capital transfer tax relating to the same value of shares, sale or sum of money. Some people will be paying both because they are quite separate taxes. Capital gains tax, as the name implies, is a tax on capital gains. Captial transfer tax is a tax on transfers. It is not more reasonable to demand that, because a person pays CTT, he should not pay CGT, than to say that, because a person has paid income tax, he should not pay excise duty on a pint of beer because he is using money which has already been subject to income tax. They are two completely separate taxes, with completely separate purposes.
I know that the Opposition object to our proposal to reintroduce capital gains tax on death, but that is quite a separate matter from the question of whether the same sum of money in different circumstances should be subject to two different types of tax with completely different purposes.
A great deal of concern has been expressed about the effect of the tax on agriculture, and I accept the reality of that concern. That, of course, is why

we made a major concession for the full-time working farmer. If land values stay at anything like their present rate, the great majority of small and medium farmers will be better off under the CTT, with the concession we have made and the new way of valuing their farms, than they would have been under the old estate duty with the 45 per cent. relief.
The next point made by the right hon. Lady concerned the effect on woodlands. We have already had a long exchange on that matter. I think we finally reached agreement that, while ownership of hardwoods is mainly in private hands, recent plantings of hardwoods have been more in the public than in the private sector. The right hon. Lady did not seek to dispute that.
I know that there is deep concern about small businesses. We have offered a very substantial relief in terms of an eight-year deferral without payment of interest. We shall be discussing the matter, no doubt, at length in Committee, and if compelling arguments are put we are open to persuasion. But we believe now that the concession we have already made is sufficient to meet the legitimate needs of the situation.
A very serious problem arises with charities. I confess that I raised this matter myself when I was in Opposition on many occasions, when I was always told that nothing could be done because of the problem of avoidance. Hon. Members must know and accept that, in addition to the great majority of totally honest and respectable charities, there are charities which have been formed for the purpose of tax avoidance. The closing of other loopholes in the Bill will make tax avoidance through the creation of phoney charities a much more popular pursuit even than it has been in the past.
Nevertheless, I do not wish to impose an unfair burden on genuine charities because of the problem of dealing with charities formed as a means of avoidance. When we discuss amendments to this part of the Bill, my right hon. Friend the Chief Secretary will, I hope, be able to announce some major changes in our intentions in this regard. I am not in a position to give specific details of these changes now.

10.45 p.m.

Mr. Peter Rees: The Chancellor has made a very serious allegation that a number of charities have been formed for tax avoidance, for non-charitable purposes. Would he not feel it right to name them in the House or alternatively refer them to the Charity Commissioners or to his right hon. and learned Friend the Attorney-General so that these matters can be properly investigated rather than be the subject of ill-founded and baseless allegations?

Mr. Healey: In making those remarks I was following the precedent set by Mr. Tony Barber, as he was—my predecessor. When I pressed him to raise the exemption limit for charities above £50,000 he said that he could not do so because of the avoidance problem. He refused to give details for exactly the same reasons as I refuse to do so, that the avoidance of tax by charities is not a crime in law at the moment. The Revenue has not found a means of defining the purposes of a charity and the way in which a charity is conducted so as to remove this danger of avoidance. This is a problem with which successive Chancellors of the Exchequer of both parties have been faced. The hon. and learned Gentleman must remember the exchanges that we had when I was on the Opposition side of the House and he was on this side. The problem of avoidance was the reason given by my predecessor for not going any further than the £50,000 limit. I propose, because of the real burden which could fall on charities, to go further than that, but the House must be patient and wait for details when we reach that part of the Bill.
The last point which the right hon. Lady the Member for Finchley raised is one which has given me great personal concern, and that is the decision to remove the relief for persons killed in action, which was introduced not so long ago. I find it very difficult to justify this relief at a time when the great majority of public servants now being killed in action are civilians. I see no reason why this special relief should be offered to members of Her Majesty's Armed Forces but denied to policemen and members of the Customs and Excise in Northern Ireland.
I appreciate the feeling that there must be on both sides of the Committee but I must also tell the Committee that I cannot offhand recall a case where this relief has been applied. It applies only to the estates of persons who are rich enough to leave £15,000. But again I will listen very patiently to any arguments which may be advanced when we consider further details of the Bill, and if I find them compelling I will accept them.

Mr. Michael Brotherton: Would the right hon Gentleman not agree that all those killed in the services of the Crown, whether or not they are members of the Armed Forces, should be entitled to this relief?

Mr. Healey: I prefer not to give a judgment on that matter. Such a decision has never been taken by a previous Government. I recognise that this is a matter which causes deep concern on both sides of the Committee. I am prepared to listen to any argument which may be advanced when we come to other matters, and if I find them compelling I will act in the way which the right hon. Lady would wish, but I can give no commitment. I shall wish to hear the case argued very much more carefully.
On this mater of the treatment of members of Her Majesty's Armed Forces I am prepared to listen to reasonable argument. I am prepared to do so on any matters which hon. Members may raise. We have already announced some changes in our plans as a result of discussions earlier in the year. We shall be introducing some amendments and further changes as the Bill proceeds through Committee and Report.
We have no intention of allowing this tax to operate in a way which we consider either unjust or contrary to the social or economic interests of the nation. [Interruption.] I must conclude, as I began, with this central point and, strong as feelings may be on the opposite side of the Committee, I hope that right hon. and hon. Members will treat the point with the seriousness with which I put it.
Estate duty was introduced some 80 years ago, and accepted in all quarters of the Committee as a legitimate means of achieving a legitimate objective. That objective has been frustrated on a great and growing scale, overwhelmingly by


the wealthier members of the category to whom it was liable to apply, a category which itself represents only a small minority of the men and women of this country.

Mr. Nicholas Fairbairn: rose—

Mr. Healey: The lower limits we are introducing in the capital transfer tax and the exemption for spouses make this new tax much fairer than the older one and infinitely more efficient.
I hope that hon. and right hon. Gentlemen will consider those facts before deciding finally how to vote on this matter.

Several Hon. Members: rose—

The Deputy Chairman: Has the Chancellor given way?

Mr. Healey: No. I have sat down.

[Mr. GEORGE THOMAS in the Chair]

Mrs. Thatcher: The Chancellor has us worried not only that he does not understand estate duty, or the new tax which replaces it but that he does not appreciate the full effects of the capital transfer tax he is proposing on the life of individuals, on the economy of the country, or on the whole of free society.
We started the debate on the capital transfer tax by people alleging that there was great inequality of wealth.
If two people come out of college or school together and start in an identical job, with identical wages or salaries, they will finish their lives with wholly different wealth: one could save and the other spend.
The distribution of wealth between people would be different one from another. That would be totally fair because they would be aware that they had chosen to do it. One had chosen to pass on his wealth to his children. Why not? Why does the Chancellor take such objection to such efforts for one's children? Some think of it as a duty and privilege.
When one comes to the Chancellor's other points about estate duty and this tax, one gets more worried.
Leaving aside forestry, one comes to his remarks about the effect on gifts between husband and wife. He misses the

essential point. He said that, for the first time, this Government were making transfers between husband and wife exempt. That is nonsense. They have always been exempt, except when made within seven years of death. Husbands have always been able to pass over their wealth to their wives. Perhaps some Socialist Cabinet Ministers should try it.
When estate duty was in its earlier years, gifts inter vivos were caught only if made within three months. When I came into the business it was three years, and then it became five years, and now it is seven years.
The Chancellor has missed the point completely. Under our regime, gifts between husband and wife have always been exempt. The Chancellor is not making them exempt for the first time.
They came into charge only if they were made within seven years of death. In fact relief from estate duty as between husband and wife was comparatively generous in our day and in our manifesto we expected to take that even further.
The Chancellor queried some of the figures I gave. They appear in full in The Accountant. Let me give an example of a smaller estate. If a husband passed over a property to his wife in order to equalise their estate—and it was often done by putting the house in the name of the wife—so that she had an estate worth, say, £20,000 and he had one worth the same, the situation would have been as follows. On his death £20,000 would pass to his wife. If he left her only a life interest in it then no further duty would accrue on her death. There would be no estate duty on the £20,000 which would pass on his death because of the exemption on the first £15,000 and because the next £5,000 was left to the wife. The only duty payable on her death would be the estate duty payable on her estate. Under our regime on the death of both spouses the full amount of estate duty payable on that comparatively small sum would have been £1,250. Under the Chancellor's new regime, for which he claims so much, the capital transfer tax on the death of the widow would be £4,750, an increase of 280 per cent.
When one of my hon. Friends asked whether widows would still get exemption under the new regime, the answer was


that they would. However, upon the wife's death the amount of duty payable would be far greater and it would be the children who would suffer. In addition the £15,000 exemption which applied to gifts by the husband would probably have been lost.
The Chancellor then went on to say something about his generous provision for wedding gifts. But his provision is infinitely less generous than it was under the Conservatives. We allowed an exemption on £5,000 as a wedding gift and the Chancellor has confirmed the sum of £2,500 under his proposals. It is interesting that what he calls generous is half what we call generous.
The Chancellor then dealt with various other points, but he failed to deal with one that was raised from these benches. One of the devastating effects of the tax is the grossing up provisions. The rates on this tax are absolutely penal. For example, if a man builds up a small business and wishes to transfer that business long before death to his four sons, and assuming that it is worth £200,000, he will transfer it in four slices of £50,000. He would then have to find some £211,000 in tax. Very few businesses could do that. The only way out for them would be to sell up and break up the business. The Chancellor seems prepared totally to refuse to face this matter. Small businesses and, even with the relief he has allowed, some of the farms would not be passed on from one generation to the other. The assets are all in the business. The grossing up provisions become in excess of 100 per cent. at the level of £200,000. If a business is passed on, therefore, it will mean paying out as much, if not more, as the business is worth in cash to the Revenue.
11.0 p.m.
The Chancellor seems to take the view that that affects only a comparatively few people. It affects not only the few who have built up the business but all those who work in it. They will naturally be worried that the business cannot carry on under the same ownership. It will soon not be possible to sell the shares to pay duty. The only buyers then will be the bigger companies or the State. That is what the right hon. Gentleman wants. He wants such companies to be taken over by the State, and taken over easily.
Many small businesses are in the regions, which rely extensively on them for employment. More people work for private companies and businesses than for any other type of employer. Private companies and business account for 39 per cent. of civil employment as compared with public companies' 37 per cent. Therefore, the tax will have a drastic effect not only upon those who have built up the business but on those who work for it. It will result in massive takeovers and in those with the ability to work and innovate and build up such businesses going overseas to do it, where they can profit from their own efforts and pass on those efforts to their children. The Chancellor has wholly underestimated the effect upon small businesses.
We have also received representations about the effect on shipping. About 20 per cent. of shipping is in the hands of private companies, which they tell me are responsible for about £120 million a year net invisible earnings. A number of the shares in those companies are already in the hands of discretionary trusts. Those trusts will be charged to tax after 1976, and a number of them, having no other assets, will have to sell the shares. To whom will they sell them? Foreign buyers would love to pick them up. A great deal of the trade is between islands and countries outside this country. The trustees will have to get the best value for the shares, and that will be found from foreign buyers, who would like to get their hands on this valuable trade—as would the Government. Therefore, the tax can have a far-reaching effect on shipping as well.
The Chancellor said that I chose to raise indexation on this tax alone. But where else on the Bill could we have raised it? We started to discuss it on the investment income surcharge, but our job there was not to index it but to retain the reliefs at their present level. The Chancellor and all his back benchers even marched through the Division Lobbies to defeat an attempt to prevent the disabled from being worse off under that tax.
I notice that under the capital transfer tax the right hon. Gentleman has given no special exemption for gifts or settlements made to keep the mentally or physically retarded after their parents have died. His answer will be that if


everyone cannot have it no one can. That just about sums up his approach to all taxation matters.
The right hon. Gentleman referred again to charities. We have had many representations about charities. The Chancellor seems to find one or two charities to his distaste. I challenge him to give us a precise quotation of what Tony Barber said about them. The right hon. Gentleman gave only a very general quotation. Many charities are telling us that they will not be able to continue if the tax is at anything like the level at which the Chancellor has put it. He knows full well that most charities are set up with gifts far in excess of the £50,000 to which he has chosen to limit them. In fact, the figures from the National Council of Social Service show that some 268 trusts have been set up in the past 10 years with sums in excess of £50,000.
The Chancellor would prefer to see all beneficence come from the State and not from private charities. He knows full well that most of the capital projects of charities are financed from gifts well in excess of £50,000. That applies especially to homes and places for the aged. It is known that 95 per cent. of such projects are financed by large gifts. The Chancellor would rather penalise those many charities than exempt all charities from tax. His reason is that there are a few charities that he does not like.

Mr. Healey: The right hon. Lady asked me if I would quote Mr. Tony Barber's words. I shall do so now, Mr. Thomas. He said on 21st March 1972:
It has repeatedly been put to me that there should be some relief from estate duty on bequests to charities and I agree. Unfortunately, because of the opportunities for manipulation by a few if very large sums were to be exempted there must be a limit."—[OFFICIAL REPORT, 21st March 1972; Vol. 833, c. 1371.]
He then went on to discuss the limit. On Second Reading on 20th April he said that he was going to offer a concession of a £50,000 limit. He said:
The relief for charitable bequests is designed to encourage the flow of funds to charities. The cost of this concession is modest, and in deciding whether or not there should be a limit and what limit should be I was not constrained primarily by considerations of cost. The reason for the limit is, quite simply, that without it, there would be serious risks of abuse. I came

to the conclusion that a limit of £50,000 would be appropriate to deal with this."—[Official Report, 20th April 1972; Vol. 835, c. 784.]

Mrs. Thatcher: That is quite different from the version that the Chancellor gave. The Chancellor was saying that a number of charities have been set up specifically for avoidance. He has taken something quite different and attempted to make it similar in different circumstances. The circumstances in which Tony Barber was referring to the position of charities was when there was no limit on gifts to charities unless the gifts were made within one year of death. If they were made within one year of death there was a limit upon them of £50,000. The Chancellor has gone from no limit on gifts to charities to a £50,000 limit on all gifts to charities unless the excess is aggregated with the rest of the estate. He must get it into his head that death duty was a totally different tax from that which he has introduced and that they cannot be compared.

Mr. Healey: The right hon. Lady is patently wriggling. The quotation that I gave her justified to the hilt my statement that a previous Chancellor believed that tax was avoided by manipulation through the charity system. That is absolutely clear. That is precisely what he said. The right hon. Lady is unable to deny that. She is now riding off on a completely different principle.

Mrs. Thatcher: The right hon. Gentleman cast aspersions on a number of charitable trusts. He refused to name them.

Mr. Healey: So did Tony Barber.

Mrs. Thatcher: There was no quotation which cast aspersions on a number of charitable trusts. The point is quite a different one. If the right hon. Gentleman does not understand the charities do. They understand very well that they cannot carry on—be it the Spastic Society, Help the Aged or any of the many other charities. They cannot continue to carry on giving help where help is needed under the provisions of the Bill. Whether it is the level of the tax, which is far too high, whether it is the effect on small businesses, whether it is the effect on agriculture—because the reliefs will still in some cases give a sale price on the land of up to about £600 an acre, which


is higher in some cases than is being fetched now—whether it is the effect on charities or whether it is the effect on loans—this is the first Chancellor to put a tax on a good turn—the consequences of the Bill will be damaging.
This is something which was not foreshadowed in the White Paper. What the right hon. Gentleman has provided for is that if someone lends money to someone else at a rate of interest below the commercial rate the person lending the money shall be taxed on the interest forgone as if it were a gift. That is the first time we have had a Chancellor putting a tax on a good turn. It was not foreshadowed in the White Paper. It will affect many employees whose employers lend them money to buy a house at no rate of interest or a very low rate. They will be caught under this tax.
What we are discussing is not a tax on gifts or a capital transfer tax. We are discussing this capital transfer tax and its structure. We believe that its structure will be thoroughly bad for Britain, will result in more property being placed in the hands of the State within the next 30 years than in any other previous 30 years, and will completely tip the balance of power in favour of the State against the private citizen. We believe that it will be damaging to the economy, particularly to small businesses, to those who work in them and who have the capacity to build them up in future. It will be damaging to the whole future of farming and forestry. It will be damaging to charities. We shall therefore repeal this tax.
In so far as there are benefits for widows or widowers in excess of those we have given we shall retain them. Our own manifesto, in dealing with widows and dependent relatives, went further than the Government have done in dealing with benefits. It extended relief on the matrimonial home to cover close relatives living in the same house. The capital tax which we introduce will bear in mind first, the weight of other capital and income taxes on the taxpayer, secondly, the beneficial treatment of gifts to the family in other countries which have a gift tax, and thirdly, the need to keep in this country those who can create the new wealth. Let us keep the successful here instead of driving them abroad. We shall oppose this clause.

Mr. Hardy: I believe that one or two points should be made. My right hon. Friend is expecting a few remarks from this side of the Committee on one subject. The right hon. Member for Finchley (Mrs. Thatcher) has given an interesting commitment to repeal this clause. She has not informed us whether estate duty will be returned. Many of us believe that if we are to have a free society there cannot be a system of voluntary taxation. For that reason, there is a vast difference between the parties and for that reason the capital transfer tax is supported on the Labour side.
My right hon. Friend is aware that there is some anxiety about forestry. It is noticeable that Conservative Members, realising that there is justifiable anxiety about certain aspects of forestry activities, have sought to focus attention on the effect of the Bill upon forestry—on those private sector forests which were little better than examples of tax fiddles over the past 10 to 20 years.
I am concerned with that one-fifth of private sector forestry which cannot be said to be involved in tax evasion. We ought not to fall into the error of damaging forestry in the way the last administration damaged it. We did not see the serried ranks of Conservative Members complaining about the damage to forestry following the Conservative Government's statement issued in July 1972.
11.15 p.m.
After that statement, without many words from the hon. Gentlemen who are bleating at my right hon. Friend, there was a sharp and savage reduction in private sector planting programmes, so that in 1974 the private sector, which had been planting acre for acre with the Forestry Commission reduced its planting programme to 30,000 acres. That is one reason why last year the Forestry Commission planted more hardwood than did the private sector.
We must increase planting in both public and private sectors. The cost of imported timber in 1975 is likely to equal half the amount of our oil deficit. Increasingly, timber-producing countries are adopting conservation policies and insisting on exporting to Britain not raw timber but processed timber. That can be a disadvantage to timber processing which we should be defending and


developing. The economics of the situation suggest that we should endeavour to be as self-sufficient as possible. We have to accept that demand will increase. If it increases in the western world generally, there is likely to be by the end of the century a world shortage of timber. For that reason planting now is highly desirable.
Many of my hon. and right hon. Friends will probably suggest that the Forestry Commission's rôle should be expanded, and I want it to be expanded. A large proportion of the people who own private woodland own very small acreages, and we cannot expect the Forestry Commission to take over responsibility for every small wood or middle-sized copse. That would be an intolerable burden for the commission to bear. Therefore, we have to ensure that there is encouragement for private forestry to integrate forestry with agriculture in sensible land use. I hope that my right hon. Friend will consider this suggestion with sympathy and discuss it with those who are much more knowledgeable than myself and very much more knowledgeable than a large number of Opposition Members.
The Opposition are seeking to persuade Britain that the Labour movement is interested only in the conurbations, and that rural areas and county towns should look to the Conservatives for support. People in the rural areas who are interested in forestry should look back to July 1972, when the future of forestry was threatened by an insensitive Treasury, and a subdued and servile Conservative Party asked no questions about it. The rural areas have ample grounds to question the political view of the Opposition.
The traditions of radical reform and democratic socialism have as deep roots in the pastures of our shires as they have in the concrete of our industrial towns, and the vision of "Merrie England" which was accepted by the Labour Party at the beginning of the century was not set in an entirely urban scene. We must ensure that forestry is extended in the years ahead, and we must not allow rumours and despair fostered by the Opposition to persuade anyone to cease

to spend money on the management of woods. I shall watch with interest the woods in private ownership on which I regularly trespass, to make sure that they are properly managed, because it is vital to maintain an attractive landscape. I am sure that my right hon. Friend in advocating this worthy tax does not seek to bring disadvantage to that cause.

Mr. Robert Cooke: I think that what I shall say does not follow too inappropriately on what the hon. Member for Rother Valley (Mr. Hardy) said. Perhaps in a quieter interlude in this debate, I shall attempt to deal with consequences of the capital transfer tax and wealth tax not foreseen, and perhaps not intended, by the Government. I refer to the effect on what has come to be known as the national heritage.
I have no hesitation in declaring a deep interest in the national heritage. In this I am not alone because the British Tourist Authority, the Georgian Group, the Civic Trust, the Victorian Society, the Society for the Protection of Ancient Buildings and both National Trusts are all with me. All these completely disinterested public bodies are unanimous in thinking that the capital transfer tax and wealth tax will in the end, in their present form, prove to be disastrous to our national heritage.
In 1973 there were 47 million visits to historic houses and gardens in the United Kingdom, 15 per cent. of them from overseas. Overseas visitors in that year spent £872 million in hard currency in the United Kingdom. They came here largely to see our history and landscape. Many of these historic places and landscapes are seriously threatened by the new taxes. Of the 47 million visits, 26 million were to independently-owned properties and 11 million to privately-owned properties threatened by the new taxes. It is probable that in this coming summer at least 15 million visits will be made to the threatened properties.
The British Tourist Authority will confirm that it is to the family home and their contents, gardens and parks that the visitors want to come as the number one attraction. National Trust properties attract only about half the total number of visits as do privately-owned properties.


The trusts will confirm that their caretakership is no substitute for the life and continuity of family ownership and they could hardly take on more places, even if they wanted to do so. They would need massive endowments from public funds if they tried to do more.
What about the State? The case of Heveningham is a case which provides an awful warning. That house was acquired a few years ago by the State for £300,000, when the family who built it created it, and lived in it were taxed out of it. The State acquired the house, some land and some contents for that large sum. And what happens now? It stands partly furnished and unoccupied and costs £30,000 a year of taxpayers' money to maintain—and all for what purpose?
Let us not be sidetracked into thinking that institutional use or multi-occupation is the answer. Recently, with the aid of some Government money, a few fine houses have been rescued at the eleventh hour and divided up into a number of residences. People have been found who will pay for a share of a restored, subdivided historic house. But public access to those houses, even if they are restored in part with public money, will hardly be possible. In any case, the spirit of the place is lost when it is run, as it must be, by a changing committee of multi-occupants. The fabric may be saved but the feeling is changed out of all recognition.
It has been suggested by some well-meaning people that individual charitable trusts will save these houses. Some have already done this where massive private endowment has been available, but this will not save many because endowments are not there and are now ruled out by the Chancellor's proposals and the £50,000 limit. And the non-participation rules will prevent the benefactor having any say in what goes on in the house which he has given to the trust.
I am extremely glad to see the right hon. Gentleman the Chancellor of the Exchequer in his place tonight. I am sure he has a good working knowledge of this subject. If he wants to know anything more about it, I shall see that he is fully informed.
On the question of houses and their contents, the historic houses that we seek

to save for the future were built as examples of the finest craftsmanship their owner could find and filled with the best works of art, pictures, furniture then obtainable. Succeeding generations have made them, in effect, into galleries and museums long before public museums and galleries ever became a reality. Many of these houses have been open to the public for 300 years. At their best, they are far better settings for works of art than any public gallery.
If our present museums and galleries were doubled in size, they still could not accommodate or display all the things that would be dislodged by capital transfer tax and the wealth tax.
Lest anyone should be side-tracked by the few great showmen owners, with their safari parks, I would add that it is not those we are on about tonight. We are on about the many hundreds of smaller places which are focal points for the arts and all manner of other good works in their neighbourhoods. They should be built upon and not cut off by taxation.
We have regional arts associations struggling for their existence at a time of difficulty. What they are seeking to do could easily be achieved with the historic houses of England, Scotland and Wales as their focal points—music, drama, painting, crafts, exhibitions, events of all kinds. We must reflect that there would be no new Glyndebournes if the Chancellor's taxes were enacted in the form proposed. I am sure that the right hon. Gentleman realises that and is giving it careful thought. There would be no new Edward James Foundation at West Dean Park for the Crafts if the right hon. Gentleman had his way as at present written into the Bill. These are things that we shall lose unless he changes his mind.
There are gardens of immense interest and distinction and variety, famous not only in this country but the world over. A garden is not something to be taken up one day and put down another. We shall not get people devoting their lives over generations to the creation and maintenance of fine gardens if they know that, at the end of their lifetime, that is the end and there is no future for their descendants. The taxes are a positive disincentive in that direction.
Many of my hon. Friends know more about forestry than I do, but I have a feeling that if the CTT and the wealth tax go through unamended, the effect on our oak woodlands will be decimation far worse than that which was required to build the ships which Nelson needed to fight an enemy across the sea. Surely there is no enemy from within this nation that would now so decimate our oak woodlands. But that is what the taxes will do, and if it is done, whatever one does in the way of new planting, there will be a gap of a century or more—and I am sure that the right hon. Gentleman will not want to be remembered for achieving that.
The Government have not intended all this to be the consequence of the taxes. The Chancellor has said that they are not designed to be socially harmful. I know that he is making strenuous efforts behind the scenes to find a workable solution, and in this he has at least my understanding and support.
I offer what I think is the solution because it preserves the principle of the taxes. At the same time, it prevents the destruction of what we all hold so dear. If the CTT and the wealth tax are held in suspense—a sword of Damocles—but firmly held, over historic houses, gardens, woodlands and estates and other supporting resources in fair exchange for "reasonable public access", the taxpayer and the tax gatherer and the private owner can work in happy partnership to preserve the national heritage.
What is reasonable public access? It will differ in each case, but it works very well already for several hundred historic buildings through individual access agreements, policed by the Historic Buildings Councils for England, Scotland and Wales. They at present supervise the listing of the buildings and advise on grants for repairs made by the Secretary of State concerned. They are well qualified to supervise access because they already do so for all the places to which they have given grants or loans. They could easily extend their scope. They have getting on for a quarter of a century of experience. They could deal with works of art in isolation, as well as buildings and lands. They are the Government agencies, appointed by the Government—people with immense skill and of enormous

distinction. I blush to mention the fact that there is always a statutory Member of Parliament from each side of the House upon them.
11.30 p.m.
This is not an open-ended drain on the Revenue—this is my last point, but the strongest—because only those places and objects with access agreements proposed by the HBCs and approved by the Secretary of State would qualify. Therefore, there is no open-ended commitment. The Government have it in their own ha to decide what concessions are allowed.
Public access to the national heritage would be assured because owners who did not play the game would be heavily taxed. Owners and their heirs would have their confidence restored, and they would, in effect, be trustees for the future—and there would be a future under what I am proposing. Here the Chancellor must be pleased again, because if they did decide to sell up they would be heavily taxed, so the national heritage would be far less likely to be dispersed—there would be a positive disincentive to disperse it—as certainly will not be the case if we do not amend the Bill.
I must also say to the Chancellor, incidentally, that both taxes depend upon such a mass of valuations that I am informed by the art trade and the auctioneers that they could not possibly do these. It is, in any case, an inexact science. Our capital gains tax on tangible moveable property is something of a farce. It occupies a deal of time and produces little in return.
The Government have much on their minds, and we want to debate all the other aspects of these taxes. Other speakers can embroider this whole subject and what I have stated somewhat baldly. Many hon. Members on the Government side of the Committee care about this matter. Save the national heritage from wholesale upheaval, dispersal and permanent loss we must. On this all parties are surely agreed.

Mrs. Helene Hayman: I am very grateful for the opportunity to welcome what my right hon. Friend the Chancellor has said this evening about the Government's intention to mitigate the effects of the Bill as it now stands on charities. There are many of


my hon. Friends who welcome the whole principle of the capital transfer tax, and who have very little concern about the upper limit of £5,000 on wedding gifts, but who nevertheless are deeply concerned about the effects of the Bill as it now stands on what the Chancellor has himself admitted are the majority of charities which at present, whether or not we like it, are doing a very necessary and valuable job in this country and which would be adversely affected if the present provisions of the Bill were enacted.
Many charities are totally dependent on large gifts from individual donors. We made a pledge in the White Paper on the capital transfer tax that charities would be no worse off than they are under the present estate duty provisions. This promise is not carried out in the letter or in the spirit by Clause 28 of the Bill and the proposal to aggregate all gifts whether to individuals or to charities made throughout a donor's lifetime.
It is these aspects about which those of us who have worked for charities are most concerned. The Chancellor says that he has not yet made up his mind how in Committee the Bill could best be amended. I hesitate to suggest to him that he might adopt the amendment standing in my name and that of my hon. Friend the Member for Woolwich, West (Mr. Hamling), which is simply to delete the clause, and instead, when he wishes to tackle the abuses which many of us recognise exist in the use of charitable status, that this should be done overall to all the tax concessions which charities enjoy and in a thorough review of the definition of charitable status.
However, we are using in the capital transfer tax a very blunt instrument to knock on the head the majority of very worthwhile charities in order to get at a tax-avoiding minority. I hope that the Chancellor will be very generous in his drawing up of the amendments which the Government will table and will remove from myself and my colleagues on the Committee any unpleasant possibility of having to vote against the Government on this issue.

Mr. Hector Monro: I am glad to have an opportunity of saying something about this thoroughly objectionable

clause tonight. First, however, if the Chancellor will not accept sense on charities from this side of the Committee, perhaps he will accept what his hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman) has just said. I start by declaring my interest as a farmer, although under the clause and Schedule 8 I am not sure that the Chancellor would agree. But he has not perhaps indicated his own interest in farming either.
I remind the right hon. Gentleman that my right hon. Friend the Member for Finchley (Mrs. Thatcher) has brought home very clearly the complexities and the technicalities of capital transfer tax, of which regretfully he does not seem to have a particularly detailed knowledge. I wish to bring home to the Committee the destructive results that the tax will have on forestry and farming. I shall speak mainly about forestry.
I have no doubt that the capital transfer tax will spell the end of private forestry as we know it today. It is a most important industry, and under the present tax relief incentives it has a great future, not only in the interest of the country but in the interest of rural communities and employment. The national interest is only too obvious in a financial sense. Imports of timber and wood-based materials will approach £2,000 million this year, representing, as we have been told, half the oil deficit.
If the Chancellor left taxation at an approximately similar level to what it is today and encouraged forestry, that bill for imports would fall proportionately as the output from our forests increased. Surely this would have a great impact on the balance of payments, which the Chancellor has skipped over tonight. Indeed the planting of 20,000 fewer acres this winter on account of capital transfer tax would at the end of the day, when grossed up, be equivalent to about £240 million on our balance of payments.
My contention is that if capital transfer tax comes in there will be a dramatic change in the whole of forestry policy. I wish to put to the Chancellor some of the results that will flow from this on the countryside. All countries give grant aid to forestry. We choose tax relief and grants to woodland owners. Most of our farms are too small for the planting of significant woodland other than for


shelter belts. Indeed, the average woodland size is about 250 acres in England and 350 acres in Scotland. It is important to note this size because it is certainly too small for the Forestry Commission to operate economically.
I hope the Chancellor realises that if we lose half of our home production through the failure of the private sector we shall have to turn to Finland, the Soviet Union, Canada or Brazil to provide the improved imports that will be required. Can he at this stage guarantee into the years ahead that those imports will be available and at reasonable prices? Of course he cannot. He is, therefore, playing fast and loose with forestry.
I should like to illustrate the situation that the Chancellor is bringing upon forestry and the rural areas in relation to my constituency I have received floods of letters from forestry workers. The Chancellor tried to indicate that the Opposition represented the woodland owners. This is far from true. Perhaps he saw the 800 or 1,000 forestry workers who lobbied the House of Commons yesterday. They are not woodland owners. They plant the trees, extract the timber, and work in the sawmills. They will bear the brunt of the effect on forestry if the clause is passed.
In Dumfrieshire there are 117,000 acres of plantations, 68,000 acres of which are private woodlands, and 49,000 of which belong to the Forestry Commission, covering nearly one-fifth of my constituency. There is a comparatively high unemployment rate there. That is why I feel so bitter about this attack tonight on employment in the woodland areas—feelings which I am sure are shared by many hon. Members, although by fewer Government than Opposition Members.
There is an excellent employment potential in the woodland areas. Allowing for increased productivity, in 30 years' time about 2,250 jobs should be available instead of 650 jobs at present, with an output of about £50 million. That potential is being damaged by the Chancellor's proposal. Under the CTT proposal, 50 per cent. of that production will be threatened, and we shall lose the value of long-term management, which is so important as regards woodlands.
Not only will serious damage be done to the economy, but unemployment will rise. Contractors are already paying off their men. Hauliers, who are not ordering vehicles, expect to pay off their men in a few years' time. There is certain to be rural depopulation. In many parts of my constituency forestry workers form the largest proportion of the woodland communities. There is the effect on the shopkeepers to be considered. They are having a hard enough time under the Labour Government. There are the effects on the amenity of the countryside to be considered. I know that the Forestry Commission sets a fine example in that respect, but its efforts are equalled by some of the private landlords.
I point out to the Chancellor, who is somewhat remiss on this issue, that 90 per cent. of the hardwoods of Scotland are owned by private woodland owners. The right hon. Gentleman should realise that hardwood takes of the order of 120 years to mature. If the softwoods are neglected, as they may well be under these proposals, the countryside will become a haven for vermin, causing food production problems to neighbouring farms. He must also bear in mind the effect his proposal may well have on the tourist industry, directly and indirectly, with regard to employment in hotels. In many ways the Chancellor's proposals will be extremely damaging to the countryside.
Looking ahead to the time when the great forests mature, the hopes of people in many areas to see the establishment of pulp mills or chipboard factories are fast receding. This will be a particular disappointment in South West Scotland. One Scottish forester said that the Labour Government are about to start something far more serious than the Highland clearances of the early nineteenth century.

Mr. James Sillars: Bonkers.

Mr. Monro: The hon. Member for South Ayrshire (Mr. Sillars) says "Bonkers". He of all people should have an interest in forestry.
I should like to quote what was said by Professor Alan Thompson, a former well-respected Member of Parliament, and now Professor of Economics at Heriot-Watt University. Last week he expressed his opinion that it might cost


Scotland 5,000 jobs, and perhaps 1,600 jobs in wood-based industries.

Mr. Crawford: If the hon. Member says that the Labour Government are responsible for as much devastation in Scotland as was caused by the Highlands clearances, who does he say was responsible for the Highlands clearances?

Mr. Monro: Probably the predecessors of the Scottish National Party. I am describing what will happen in the next five years as a result of the Chancellor's proposals.
My hon. Friend the Member for Bristol, West (Mr. Cooke) pointed out that hardwood production is an extremely long-term occupation, and how right he was to remind the Committee that if we had had CTT in the sixteenth, seventeenth and eighteenth centuries, we would not have had the hardwood which went into Nelson's warships in the early nineteenth century.
I hope that the Chancellor of the Exchequer will take on board how seriously his proposals are being fought in the countryside. He cannot have forgotten his words to the CBI last May, when he said:
Her Majesty's Government has no intention of destroying the private sector or of encouraging its decay. We want a private sector which is vigorous, alert, imaginative and profitable.
The Government have gone back on that in relation to forestry and farming. The right hon. Gentleman has broken his word. He is hell-bent on destroying private forestry, on creating unemployment in our woodlands and on ruining the best of our countryside. At the same time, he is making life in rural communities especially hard with his VAT on petrol.
All that I have said about forestry is equally true of farming. Many farmers appreciate now what some of my hon. Friends were saying in October, that in the future it would be virtually impossible to pass on a farm from father to son. The loss of the 45 per cent. relief is catastrophic in terms of the farm structure of the United Kingdom. The right hon. Gentleman's proposal for relief of 20 times the rental is nothing more than a con trick. No one can think that that will help agriculture out of its difficulties.
I need say no more to bring home just what a disaster this proposal is, other than to quote the chairman of the Scot-

tish National Farmers' Union Legal Committee. In summing up this proposal, he said:
We are not in any way seeking privileged treatment for individuals but are trying honestly to find a means of keeping intact and efficient an industry which is the envy of other countries and on which the well-being of this country must always to a large extent depend.
Why destroy it? Why create unemployment? I ask the Government to give reasonable thought to these arguments. They should go away and bring back a new clause.

Mr. G. R. Strauss: I want briefly to reinforce and support with all the urgency at my command the plea from both sides of the Committee to the Chancellor of the Exchequer to prevent damage to what is called "the national heritage".
This matter has been studied very carefully by right hon. and hon. Members on this side of the Committee, and they want me to plead with the Government to see what can be done to amend the Bill so as to preserve our national heritage. I know no one in the House who is more keen than my right hon. Friend the Chancellor to do so, so that our fine country houses, which have historic and aesthetic interest, together with their surrounding lands should remain permanently available for the enjoyment of our people and of visitors from abroad.
The danger arises from a number of factors. One is the increasing taxation which makes it much more difficult for private people to maintain these houses. Many belong to the National Trust, but many are still in private hands. If it is to be a condition of exemption from the capital transfer tax that they become the property of some body like the National Trust, as the Bill proposes, the situation will be very serious, as the trust requires large sums to be set aside by the donors of such buildings for their preservation and maintenance. Moreover, its present liabilities greatly exceed its necessary outgoings. So the houses and their contents, which usually should not be separated, will not be accepted by the trust, or by local authorities.
Something must be done to ensure that these houses remain available for the enjoyment of the public. They are some of our most precious possessions, a


glorious part of our heritage. Their historic and aesthetic interest is tremendous. We are fortunate to have so many of them kept in good condition for decades and even centuries.
I therefore ask my right hon. Friend to consider exempting these buildings and their contents from the tax so long as an undertaking is given, either by a national body or by a private person whose family may have lived in them for a long time, that they will be maintained in good condition and visitors allowed to view their contents. The Historic Buildings Council could supervise the work admirably. Probably this is the most acceptable solution, and the one most likely to be successful. But only by some such amendment to the Bill can many of these buildings be retained for the pleasure of our people and foreign visitors.

Mr. Maurice Macmillan: I, too, oppose the introduction of this tax at this time. This is a wholly objectionable way of introducing a new tax in a field where there is a need for tax reform and where there are possibilities of making real and sensible improvements, without the dangers and damage to our economy, our people and our heritage that we have heard discussed tonight.
There is no urgency. As my hon. Friend the Member for Cirencester and Tewkesbury (Mr. Ridley) said, the effect on the borrowing requirement, if any, will be to increase it immediately. It has no economic purpose in the short run and, in the longer term, the Select Committee on the wealth tax is deliberating a wider field yet of taxation of capital. I should have thought that any sensible measure of tax reform should await the report of that Committee, which anyway, I understand, is to be asked to guide the Chancellor on some aspects of exemptions from the capital transfer tax.
I want to make my objections to the tax on general grounds, but I must first declare a personal interest. As it stands, the tax will make it very difficult, if not impossible, for my family's publishing house to continue as a family business. That may not matter very much. It has been going since 1843, so it has had a good run. But there are other family companies, some big, some small, some growing, some fading out and going bust,

alas. There are 300,000 of them in all, compared to the 9,000 or so companies whose shares are quoted on the Stock Exchange. They employ, as my right hon. Friend said, over one-third of the total number of the working population; 51 per cent. of the private sector work for unquoted companies. They are not all small businesses or owned by very few people. Some of the larger have a very wide ownership, too, including their management and work people, in this country and, indeed, overseas.
Altogether, the unquoted companies, partnerships and self-employed, make a very significant contribution to the economy of this country in manufacturing industry, service industry and the professions. They make a quite disproportionate contribution to innovation and invention, partly because they are able to undertake projects which no director of a publicly-owned company with outside shareholders would dare recommend because of the element of risk involved. That is how so much of the invention and innovation has come about, upon which our economy has depended. These companies have a far better record of ploughing back profits and of reinvestment than public companies.
I know that the argument would be advanced by the right hon. Gentleman that they have survived as family businesses only because of the admittedly legal loopholes in estate duty. Of course, there is an element of truth in this. But these arrangements were necessary only because of the level of estate duty on private businesses. Alas, I know many private businesses, both present and past, which did not make those arrangements, which were destroyed and taken over by larger firms and became part of great conglomerates, and it is worrying to me as a Member of Parliament because I fear that when a small business is taken over by a great combine it is a case of "last in, first out" and I worry about unemployment in my constituency.
As my right hon. Friend the Member for Finchley (Mrs. Thatcher) said, some of these arrangements are discretionary trusts which are different in kind from the arrangements which many hon. Members on both sides of the Committee find objectionable. Their purpose is not so much that of getting more to spend for the beneficiaries but to enable a business,


an entity, to continue undamaged as a whole, to prevent a change in quality rather than to get an increase in quantity.
My right hon. Friend made a point about grossing up and the impact that this is likely to have. I say to the Chancellor: All right, let us close the loopholes on taxing capital, but if we are going to do so, we should take account of the form in which that capital is held, as well as the total amount: whether it is easily divisible, or whether it is impossible to divide it without destroying a living entity, be it farm or forest, manufacturing industry or service industry. We should take account of the form in which it is held, as well as of the total amount, and should take account, too of the impact of other taxation, including, whatever the Chancellor may say, capital gains tax, because I say to him that there is something a little distasteful about forcing someone to sell property and then taxing him on what he gets to pay the tax on what he passes on.
12 midnight.
My first major objection to the clause is that it is a direct discouragement to individuals to invest, to reinvest, to plough back their profits and to build for the future. By God, what fools we have been made to look by the Chancellor, those of us who have exercised what might be considered Victorian virtues of thrift by looking ahead and building for the future. We would have done better to have sold out and spent it. That is why I say to the Chancellor that what he is doing does nothing to help create new wealth but rather encourages a "get-rich-quick" attitude, a "never-mind-the-future" attitude, a one-generation society where the wheeler-dealer gets the best and the creator for the future is overlooked.
Nor does this clause redistribute wealth. That is my second major objection: the pretence that this is a redistribution of wealth. It is not. It is a concentration of wealth and capital and particularly, perhaps, of productive capital in the hands of the state or of big companies owned largely by institutions rather than by individuals. It is an attack not on private property alone, not on private enterprise alone, but on those who would seek, by their own efforts to spread wealth more widely. It prevents the redistribu-

tion of wealth, prevents saving and thrift and private enterprise carried on by more than one generation.
I used to run an organisation with a lot of support from the Liberal Party, and some from the Labour Party and the unions, in which we tried to spread wealth more widely. It derived from a pamphlet published many years ago called "Everyman a capitalist". That was our ideal. Now the Chancellor is putting before this Committee the proposition that every man must be an employee.
I am delighted to hear my right hon. Friend undertake to repeal this provision, particularly because there is a strong case for taxing capital as well as income, but in a way which helps the distribution of wealth more widely—the distribution of wealth for wider personal ownership by people for themselves and not by the State acting on their behalf, a system which takes account of whatever form of wealth tax we may consider and which takes account of capital gains tax, of taxation of earned and investment income, and of a cut-off point which other countries have, as the Chancellor quoted, which considers the possibility of an expenditure tax within such a system.
The objective of this reform in the form of taxation of capital and income taken together must be to help earners at every level become owners of real wealth. I do not think it is all that difficult. One could have a much lower earned income tax. We should have stock option schemes and share incentive schemes to encourage savings in industry by employees at every level. It is possible to conceive of a wealth tax and an investment surcharge set at levels at which every earner, including the high earners, would be able to pay any tax on their capital out of their net investment income. It is possible to adjust that package in order to give positive encouragement and help to people to acquire capital up to a given level, with protection from confiscation for those who are already at that level. It is possible to have measures to prevent the effective rate of taxation in a given year rising beyond a given percentage of taxable income. In Sweden, for example, I believe that it is 80 per cent.
I accept that this must seem horrible to the Labour Party. It must be a horrible idea that managers and weekly wage earners should be encouraged to be thrifty, that success and enterprise should be rewarded, that individuals should actually be helped to start up on their own, to invest their own money and to build a trade and plough their own money back into it. It must sound horrible that these people should wish their enterprise to be carried on after their deaths by their families and others.
This desire for continuity has helped to make Britain a great country. It has helped our visible and invisible exports. It is not always possible to realise that desire within the first 20 years of starting a business. The Chancellor is putting at risk all that the past has achieved, and he may well prevent such successes in the future. The Chancellor pretends that he is interested in social justice and the fairer distribution of wealth, but he is in reality seeking to impose uniformity and a levelling down so that the Government and any administration which follow them will be in a position to say with truth "We are the masters now:" The right hon. Gentleman has chosen to do this by a method which must be economically damaging even if it has no great effect in the short term. In the longer term the clause enables the Government to squander the nation's capital. It is forcing people to disinvest so that the Government can spend the capital as if it were income. That is really my third major objection—that the Government are seeking to spend capital as income. It is inflationary to do so, and it inevitably leads to disaster.
I have these major objections to the clause: it discourages investment and the ploughing back of profits, it is damaging many legitimate interests—farming and forestry, manufacturing and service industries; and it is destroying what has been built up over past generations. It may well prevent the creation of future enterprise. It concentrates capital and real wealth in fewer and fewer hands. It strengthens the institutionalised power of bureaucracy both in Government and in great impersonal combines, and it weakens individual enterprise and ownership. It squanders capital as though it

were income, adding to inflation and making economic recovery more difficult.
As I have tried to show, we should seek a more equitable system of direct taxation of capital and income. If possible—I believe that it is possible—we should find one that encourages enterprise, spreads ownership and adds to the nation's capital. That is the time to talk about taxation of capital. Meanwhile, I ask the Committee to reject this nasty, mean, complicated and destructive measure.

Mrs. Winifred Ewing: My party came into the Chamber to support the Government, but we expected assurances which we have not had on three of Scotland's vital industries. We are not satisfied with the Chancellor of the Exchequer's statement.
When the right hon. Gentleman mentioned forestry he spoke about hardwoods, which are largely irrelevant to Scotland. When I tackled him on a serious matter, he did not give me a serious answer.

Mr. Healey: rose—

Mrs. Ewing: I should like to develop this point before giving way.
I well remember the two years and seven months I soldiered in the House as a lonely party of one. In fact, I was told that I was not a party, being only one. During that period the only debate on the Highlands and Islands was in the other place. I naturally went to listen to that debate, and I heard the Leader of the other place say that the Forestry Commission had not once used its powers of compulsory purchase in Scotland; he boasted that it had not used them to acquire a single acre. To my astonishment, both sides of the other place erupted with cries of "Hear, hear". They were delighted about that.
There are only just over 2 million acres of forestry land in Scotland. There are 11 million acres of uplands. With a sensible forestry policy, by the end of the century there could be 5 million acres under forest.
The Committee laughed when I suggested that the softwoods grow two and a half times faster in Scotland than they do in Scandinavia. But that is a fact.


When Scandinavia see our unused uplands they say that we are mad to allow them to remain unused. That situation has been connived at by successive Governments, both Labour and Conservative.
I should have been delighted if the Forestry Commission had been allowed to use its powers of compulsory purchase, but, rightly or wrongly, it was not. Dedication schemes were started, supported by the right hon. Gentleman's party. As a result, according to the Forestry Commission's report, the proportion of such schemes in our woodlands is roughly 60 per cent. to 40 per cent. That position, brought about by successive Governments, is now a fact of life, whether the right hon. Gentleman likes it or not.
Communities all over Scotland depend on forestry, whether private or public. But for forestry, certain islands would have no schools. There are certain places in my hill land constituency, a fairly wealthy constituency, where communities would die without forestry and never be replaced. The house, which are tied, would become holiday homes.
We did not receive assurances. The point I was trying to make in my intervention was that Labour was a party to the policy that created this situation. In those circumstances, my party is entitled to receive assurances.

Mr. Healey: What I told the hon. Lady when she intervened was that, whatever other point she has to make, one thing we have in common is that we want more public planting of softwood in Scotland. I gave her that assurance. I am not directly responsible for that, but I will put the matter to my right hon. Friend the Secretary of State for Scotland.

Mrs. Ewing: The right hon. Gentleman has not answered my point. The facts of life are as I have stated. The right hon. Gentleman's party is partly the creator of the situation. Forestry is a potential expansionist industry in Scotland. It could grow from 14,000 jobs to 100,000 if the policies were right. It is the only crop that will be taxed more than once in its lifetime. That is not logical.
12.15 a.m.
There is no revenue from timber until it is felled. What will happen if no

assurance is given? A conservative estimate is that 20 million seedlings will be destroyed. We shall have immature woods. In fact, most of our woods are immature because we have not reached the position that obtains in Finland, where there is a regular return on capital. We are still in an expansionist situation. We shall have immature woods felled. We shall have an enormous loss of jobs. That has happened in Perth and Galloway, where already 60 jobs have been lost. There is a fantastic lack of confidence because the industry does not know whether any assurances are to be given.
The remarks that I have made about forestry apply similarly to family farms. They are the backbone of Scotland, Wales and many parts of England. It is true that on paper a farmer can be a terribly wealthy man. My agent has 120 acres. He was one of the last of the young men in Moray and Nairn who were able to buy a farm. He went in just in time. It would be impossible to do so now.
Do the Government want only big farming combines or do they want to retain the family farm? Unless there are assurances given of the sort that my party has been seeking we shall end up by helping not the small man but the big man.
I now turn to fishing. In many parts of Scotland there are families which have been engaged in fishing for generations. There has been a succession from grandfather to father to son. If no assurances are given, the fishing communities will turn to something else. I am in the fortunate position of having two ports that I can compare—Nairn and Lossiemouth. Both were in a similar position 40 years ago. It was then possible to walk across the harbours on the fishing boats. But now Nairn harbour is silted and not one boat is used for fishing. Lossiemouth harbour is already in grave danger. Six boats have been put up for sale in the past two weeks. The system is against the young man who wants to operate a fishing boat.
Those who are now selling their boats have been preservationists. The Scots have not ruined the Scottish fishing waters. We have used the right kind of nets to allow the wee fish to get through. Without going into what will happen on 1st January 1984, let us give some credit to an industry that has managed to keep


going by itself and provide communities and jobs. It is not only the primary jobs in forestry, fishing and agriculture which have to be considered. We also must consider the secondary jobs. In places like my constituency and many other constituencies in Scotland, England and Wales it is difficult to measure how many secondary jobs depend on forestry, fishing and agriculture.
My party, in all good faith, was prepared to support the Government. We had a meeting because we had received no assurances that satisfied us. Not one of us has been allowed on the Standing Committee, on which 40 Members sit. We represent 30 per cent. of the votes in Scotland. Not one of our amendments has been called. What sort of justice is that for the people of Scotland? Because there have been no assurances we cannot vote with the Government. However, if we are given assurances now—in other words, if the Government mend their ways—we shall be prepared to support the Government.

Mr. Brian Walden: I have some more bad news for the Chancellor. I am rather inclined, although I shall resist the temptation, to follow the speech of the right hon. Member for Farnham (Mr. Macmillan). It fascinated me, and if I were to go into it I would not be critical of it. It reminded me of the joke of Will Rodgers about redistribution of income, when he said that "sharing of wealth is the scheme whereby you take some money from fat cats, make sure that I get none of it, but give me the pleasure of watching Franklin Roosevelt spend it." I rather gathered that the right hon. Gentleman was making a somewhat similar point.
I am not wholly out of sympathy with the right hon. Gentleman, because sometimes we use the phrase "redistribution of wealth" to mean something quite different. I have no desire to prevent the Committee from deciding whether Clause 17 should stand part of the Bill. I wish to refer to a narrow but important point relating to charities.
I was glad to hear what the Chancellor said about things which the Chief Secretary will be saying to the Standing Committee. They had better be good, because as the proposals stand not only

could I not vote for them, but I would feel compelled to vote against them. I should certainly vote against Clause 28 unless it is either removed entirely, as has been suggested in an amendment from the Labour side of the Committee, or unless it undergoes such a radical transformation that it becomes a horse of a very different colour indeed. Should the Government lose in Standing Committee and try to restore the situation on Report I would have to vote against them.
Perhaps my right hon. Friend will hear me on my reasons. The thinking behind this part of the Bill is wrong. It is wrong not simply in the way it would operate but morally wrong. It is wrong on every count. I say little about avoidance, except that when avoidance reaches its current levels, not in terms of actual practice but in terms of the Revenue and highly-paid accountants playing games with each other about it, what we ought to look at is the total effective incidence of tax. That is the essence of it.
Frankly, to some extent I get bored with the obsession of the Revenue about avoidance. I do not mean by that that I would in the least support evasion, which is criminal, or approve of avoidance, which is to my mind wrong. I mean that frequently more and more things are put into a Finance Bill which cause damage, fairly widespread general damage, to catch a very limited number of cases which have come to the attention of the Revenue because of the operation of slick accountants. I can understand the Chancellor saying that there is nothing he can do about that, and I accept that there must be provisions in a Finance Bill to take account of avoidance. But these provisions are particularly bad.
Although it grieves me to say it, I thought that the right hon. Member for Finchley (Mrs. Thatcher) had the better of the case. When my right hon. Friend refers to the fact that Tony Barber spoke about avoidance in terms of a charity and the £50,000 level, he is absolutely right. Tony Barber did so. As far as I could see from the quotation my right hon. Friend read out, he substantiated his case. On the other hand, I am bound to say that the right hon. Lady substantiated hers in the sense that the situation is now quite different.
Without holding here a debate which should be held in the Standing Committee, let me make one point. My right hon. Friend realises, I am sure, that aggregation has changed this completely. Once we reach the situation where we aggregate a man's charitable gifts against his other gifts we have a completely different ball game. Nor does it have anything whatever to do—as tends to come up in muddled Left-Wing thinking—with the distribution of wealth in society. Whatever convictions there may be on that subject, it cannot but be the case that if a wealthy man chooses literally to give his money away that is the least morally objectionable thing he could possibly do with it, no matter what views one holds about whether he should have had that money in the first place.
I have no interest to declare, but I have looked at a number of charities involved and there is not the slightest doubt that the effect of the Bill will be to wipe them out. I mean that literally. That is not dramatic language used to impress the Committee. To aggregate in this way at these levels will literally wipe them out.
I ask my right hon. Friend, who has said that there will be some fresh thinking on this, to make sure that the fresh thinking is radical, that the concessions are not piffling but substantial and that the concessions will, with whatever additional provisions against avoidance may be felt to be necessary, restore the status quo ante and do what hon. Members and the public want—not tax a man's charitable contributions. It is not so simple as that, but that is the position towards which we wish to move.
I should be unhappy about a concession for domestic charities that did not also operate for money sent overseas. Some of the most valuable and vital work in terms of human life is done by charities which use money sent abroad from this country. I can think of no activity that I wish to stimulate more than our aid to the world, which is not all that splendid. The Chancellor has properly and encouragingly given that assurance, and I hope that it will be a thorough-going job. If the Inland Revenue continues to bring up the word "avoidance", I hope that the Chancellor will say "Yes, as in many other things in politics, the lesser must give way to

the greater, and the greater is the need to preserve charitable activities".

Mr. Beith: The debate started in an atmosphere of rhetoric but has produced some sound practical comments. I hope that the right hon. Gentleman will forget any of the rhetoric which was not to his liking and realise that both sides of the Committee feel that on many matters from charities to forestry there are areas of practical importance which he should consider.
It is common ground that any tax should be judged by its ability to fulfil the purpose for which it is raised without destroying or damaging productive or beneficial effort in any sphere. It has been questioned whether, if the purpose of the tax is the redistribution of wealth, it will achieve that purpose, but I leave that aside because it has been fully explored by my hon. Friend the Member for Cornwall, North (Mr. Pardoe) and others.
It is clear that the tax as it stands is not free of damaging effects in several spheres, including charities, agriculture and forestry. The measure will complete a transition which began under the Conservative Government from a tax framework in which forestry was stimulated—perhaps over-stimulated—to one in which planting a tree is systematically discouraged. Not must time has elapsed between "Plant a tree in '73"; now the slogan seems to be "No more after '74".
Can it be intended that tax should be paid for an unrealised crop five times or more during its period of growth? We do not owe land owners a living. There is no reason why we should seek to assist or "feather bed" those whose good fortune it may have been to inherit land. But we owe ourselves the right to consider seriously the effect of the tax on something that we need.
12.30 a.m.
There are three reasons why forestry is important. We need the timber. We need the employment timber-growing provides. In rural areas that is irreplaceable employment. I have received as many representations from people who are employed in forestry as from those who have an ownership or management interest in it. There is also the amenity aspect to be considered. Many of us are


concerned not primarily about the vast virgin upland plantations, but about the smaller woodlands, especially those containing the hardwoods, so vital to the appearance and traditional feeling of the countryside. These small woodlands will tend to be felled to pay the tax. The crucial point is that these will not be replanted. This is one of the most dangerous aspects from the amenity point of view. The risk is that hardwood plantations will be felled to realise money for tax and will not be replanted. Woods and copses will turn to scrub.
There are a number of ways in which this problem could be dealt with. It can be done by deferred payment, when the crop is realised, by allowances for replanting and in other ways. These matters no doubt can be dealt with upstairs in Committee. However, it is worrying many of us that there should be so little indication from the Government of any willingness to recognise that the tax, as it stands, cannot go through without substantial damage being done to forestry. It is surprising that we should be asked to agree to this clause without having been given the assurances which have been sought by hon. Members who are concerned about aspects of our national stock of timber and also about rural employment. The Chancellor of the Exchequer should at least tell the Committee that he realises that there is a problem in this respect.
There would be a great deal to be said for a capital transfer tax—or a capital receipts tax—as an alternative to death duties, governed as they are by health, luck and the ingenuity of accountants. However, there is no case for a capital transfer tax if its consequences are to be as disastrous as these. We hope that the Chancellor will give some indication that he realises the problem in this respect.

Mr. Frank Hooley: I am entirely in favour of the capital transfer tax, but I hope that my right hon. Friend the Chancellor of the Exchequer and his colleagues will look again at the question of forestry. I am not particularly impressed by the pressures of commercial organisations which want to avoid taxation or to claim that their activities will be affected by the tax. I am a lot more impressed by the fact

that several hundred professional forestry workers are prepared to stand in the rain outside the House to make a case to their parliamentary representatives that their livelihood may be seriously damaged by the no doubt unintended effect of the tax.
We must also take into account the question of the general ecology of the countryside. I hesitate to speak following the distinguished speech of one of my hon. Friends who has a fine record of concern for our nation's flora and fauna, but it is clear that woodland and forest are part of the general ecology of the countryside. If, by accident, Parliament were to introduce tax proposals that led to the widespread destruction of woodland, it would not only affect the landscape and its appearance but would upset the habitat of the countryside. That is a matter which we must bear in mind.
It would be most ironic if two years after the Stockholm conference on the environment, and at a time when men and women everywhere are becoming more and more concerned about the effect of man's activities on his environment, we should, by accident or design, introduce fiscal methods which have a damaging effect on our countryside, particularly on woodlands and forests.
I wish to say no more at this stage, but I hope that my right hon. Friend the Chancellor and his colleagues will listen carefully to the representations made to them by at least four parliamentary parties. I fully support the tax and believe that it is long overdue, but I hope that the matters raised in this debate will be carefully examined.

Mr. Wigley: I regret that I cannot echo the assurances given by the right hon. Lady the Member for Finchley (Mrs. Thatcher) from the Conservative Front Bench that when my party forms the next Government we shall repeal this legislation. However, although we are in general sympathy with the aims of redistribution of wealth—and it is something we particularly need in Wales in terms of United Kingdom tax since Welsh people on average have 71 per cent. of the per capita wealth of the United Kingdom—we have grave misgivings about this clause and some of the schedules. So much is our doubt about


some of them that we have tabled amendments. If I dwell to a greater extent than I would otherwise on those amendments, although they have not been selected, it is because we do not have an opportunity in Committee upstairs to put our points forward.
Two aspects particularly worry us—agriculture and forestry. Although our amendment to Clause 17 was not selected, I hope that the Chancellor will give its principle serious consideration. We also put down an amendment to Clause 28 and agree wholeheartedly with the comments made on that provision.
In Wales as a whole, and in my part in particular, agriculture is an essential part of the economy, and it is based on a family farm pattern. In Wales the average man days in agriculture are less than 600. They are family farms. In these circumstances, the answer for Wales is clear—no one else could or would follow on because the whole social and economic fabric would militate against it. Again, the pattern is to a large extent one of owner-occupation, and that is an important factor. More than half the farms in Wales are wholly owner-occupied and less than 25 per cent. are wholly rented. The question of owner-occupation is central in this context.
Farms in Wales also tend to be relatively small in the United Kingdom context. Over 90 per cent. are under 300 acres. As a result, there should be provision in the Bill to ensure that the impact of the capital transfer tax on agriculture is minimised for those who would be most hit by it.
The farmers in the categories I have described will be hit because the value of agricultural land has escalated. Their return on their notional investment is very low—as low as 1 or 2 per cent. Whereas a farmer has an asset on paper and if it is realised he has a lot of money, while his money is tied up in it he is getting a very low return. The realising of the asset should be looked after by capital gains tax and not by capital transfer tax.
The consequence of the capital transfer tax in its present form would be the fragmentation of farming in Wales, and the units are already so small that the pattern could not stand it. The effect would be the transfer of these units from

family ownership to institutional investors. That is a real danger in the Welsh countryside.
There is provision in Schedule 8 to give certain reliefs to agriculture, but it does not go half far enough. The formula in paragraph 3 raises many questions of interpretation. In the present situation of an artificial relationship between land values and rental values—low in many cases—the formula may give some meaningful relief, but when capital values or rental values adjust, it will not prove so effective. We ask for a guarantee of cut-off to give some relief if we cannot get the relief proposed by our amendment to Clause 17. This has been done in Northern Ireland, I understand, where there is a 37 per cent. relief for land. Perhaps in Wales and Scotland—it is not for me to tell England what to do—there can be a provision designed to deal with this situation.
The figure of 1,000 acres has been referred to, but there is land and land. There is a great difference between 1,000 acres of land on the lowland plain and 1,000 acres on the mountainside. We suggest in one of our amendments that it is necessary to deal with land according to grade, perhaps taking the 1,000 acres as the starting point but building up from grade 1 to grade 5. It may be claimed that the £250,000 alternative looks after that aspect, but, with the escalation of money values, how do we know that next year £250,000 will be a meaningful figure? The Chancellor said earlier that he would adjust threshholds from time to time. If this figure of £250,000 is the safeguard, it may be necessary to build in some inflation factor.
For this reason we are asking for an exemption for those categories—not for the rich farmers or the big estates but for those with under 300 acres of grade 1 land, or correspondingly increased acreages of poorer land. We are asking for exemption to make sure that what the Chancellor is trying to do in his relief clause is carried out in practice. This is an absolute prerequisite to ensure a future for agriculture in Wales.
Turning to forestry, as a party Plaid Cymru is not normally sympathetic towards large forestry developments. Indeed, many parts of rural Wales have been swallowed up by forestry on land


which should have been used for agriculture. But it is not through a Finance Bill that control of these things should be undertaken. We need planning sanctions and a land use strategy. It is not through a Finance Bill that we get control of these things.
Reference has been made to the small family forests which exist in Wales, as they do in Scotland. Many people who have invested money and worked very hard as individuals and developed small-scale forestry will be absolutely ruined by the provisions of the Bill if enacted. For a crop which may not have a significant value for 50 or 60 years to be moved from hand to hand several times will put an economic strain on its owners that will make it totally unviable. The result will be that there will be no further forestry except in the State sector and a rundown of existing woodlands, which will be to the benefit of no one. Therefore, we have tabled an amendment on this subject, intending not to exempt such owners from taxation but rather to defer taxation on family concerns below a certain threshold size, corresponding to the grade 5 land for agricultural purposes, and to ensure that the tax, when it is payable, is paid at the time when the crop is harvested, thus making it practical economics for those who have to face it.
It is for those reasons that we have tabled our amendments. We hope that the Chancellor, in considering them, either in Committee or on Report, can incorporate the principles, if not the detail. If so, we should be reasonably happy with the general philosophy behind the Bill. But if those assurances cannot be given, we shall be very worried indeed and will consider these matters when they come to a vote.

Mr. David Price: I have great sympathy with the complaint of the hon. Member for Caernarvon (Mr. Wigley) that he will not be in a position to move his amendments. I have the same sympathy with the hon. Member for Moray and Nairn (Mrs. Ewing), and the hon. Member for Eastleigh—myself.
I say to the Government and to whoever arranges our business that in this debate on Clause 17 we are discussing a brand new tax which occupies 17 clauses and eight schedules. We are

having one debate on the Question "That the clause stand part of the Bill" and we shall have one debate subsequently on Clause 33, which is setting up the rates of this tax.
We agreed some years ago to split consideration of the Finance Bill—part to be taken in Committee upstairs and part dealt with in Committee on the Floor of the House. In the spirit of that agreement we are entitled to have a whole new tax like this taken on the Floor of the House. That would be fair to hon. Members.
I realise perfectly well that the Chancellor wishes to get a move on. I understand that he has a deadline for getting the Bill on the statute book. I am sure that the House is generally sympathetic about the Chancellor's difficulties in this matter. But there are many of us who would be prepared, in the interests of better and more just legislation, to sit late on many nights, as we used to do in the old days—and were none the worse for it. I do not know whether this place has become so soft that we are not prepared to examine important new legislation in detail. There has not been a speech so far this evening which has not contained suggestions, from hon. Members on either side of the Committee, that ought to have been followed up by amendments, but that is not open to them because part of the Bill is not being taken in Committee of the whole House but upstairs. If no one else does it, I at least wish to make my protest strongly enough to the authorities which arrange our business. I understand that what I might call the minority parties feel strongly about this. They have my complete sympathy.
12.45 a.m.
We have this further difficulty in examining the fairly modest words that appear in Clause 17. Those modest words mean nothing without examining the subsequent clauses and the schedules. A number of points need to be made by hon. Members on all sides arising out of those schedules because, as so often happens in legislation like this, that is where the crunch comes.
I follow my right hon. Friend the Member for Farnham (Mr. Macmillan) in saying that I have no quarrel with the idea of abolishing estate duty and


replacing it with some form of capital transfer tax. I agree with practically everything my right hon. Friend said. I am sure that most of us who have seriously considered reform of our taxation system are very much aware of the imperfections in the existing estate duty, and I do not stand up here to defend it. Therefore, I am not unsympathetic to the general purpose of changing this form of capital tax.
Like my right hon. Friend the Member for Finchley (Mrs. Thatcher), however, as I examine in detail what is in the subsequent clauses and schedules—which make the structure not of a capital transfer tax but of the Chancellor's particular and unique capital transfer tax, which is the one we are debating and on which we shall take the vote—I fear that my broad political sympathy, my potential sympathy, is turned into active hostility.
I should like to put to the Committee some points which have not yet been deployed about why, structurally, this is a bad tax as conceived by the Chancellor. I repeat my support for the hon. Member for Cornwall, North (Mr. Pardoe) in his original amendment by saying that the liability for this tax should be placed on the recipient of a capital transfer and not on the donor. I reinforce all that was said in that earlier debate because it is relevant to the debate on whether Clause 17 should stand part of the Bill. If we really want to see a wider distribution of wealth, the donor should not carry the taxable liability. It should be on the recipient.
I have for a long time been a supporter of moving from estate duty to legacy duty, and I believe that some form of capital transfer tax and some form of legacy duty can be wrapped up into a new form of tax. That is where my sympathies go. Those who care about a wider distribution of wealth would all agree on that. Indeed, on Second Reading the Chief Secretary used these words:
towards a fairer distribution of income and wealth."—[Official Report, 17th December 1974; Vol. 883, c. 1369.]
As my right hon. Friend the Member for Farnham pointed out, however, as presently conceived this adds up to a further concentration of wealth in the hands of the State.
I do not think that any of us who oppose this tax in its present form wish to see any more aggregation of wealth to the State. The standard intellectual error of so many Socialists is in assuming that the State and society are the same thing. I was interested in one or two of the comments of the hon. Member for Caernarvon which support my view that society and the State are not the same thing. If there is too much concentration of power in the State, it is positively to the danger and the detriment of society. That being so, I believe that the amendment moved by the hon. Member for Cornwall, North was absolutely on the right lines.
Secondly, I believe that this tax is not designed to encourage the earlier rather than the later distribution of capital. If it is the Government's object to encourage a wider distribution of wealth, I suggest that they should design it with a lower rate of taxation for gifts inter vivos and a higher rate of taxation for testamentary transfers—in other words, when one is dead.
If one of the reasons for this tax is therefore to encourage the wider distribution, and if that redistribution be a good thing, presumably the sooner the distribution takes place the better. The right hon. Gentleman is encouraging the later rather than the earlier redistribution. However, we are used to the Government being a little confused in these matters.
My third objection is that this tax does not support the family. Indeed it has the very reverse effect. I hold old-fashioned views in this matter. I believe in the family. The family is the basic unit in society, upon which everything is built. Such are the pressures of modern life that we legislators must do everything we can to support the family and not to reduce it. That is a view which is widely held by many people who vote for the Labour Party in elections.
Most European countries have always had a bias in their taxation systems in favour of the family. I hope I misheard the Chancellor. I felt that when he referred to this point he threw a little scorn on it. The point clearly did not find favour with him.

Mr. Healey: No.

Mr. Price: I am delighted to hear that. It relieves me greatly.
I believe that this case, which is a genuine one, is already recognised by the Chancellor. He is proud of having relieved the spouse of the estate duty liability. I shall not go into the details of the argument between him and my right hon. Friend. Let us assume that the right hon. Gentleman holds that view. I ask him why he does not extend this principle to children. I do not suggest that the children should go tax-free. However, the imposition of a lower rate should result in wider distribution. In his treatment of income the Chancellor has already aggregated dependent children with their parents. He has already conceded the family as one by saying that the dependent children's income should be aggregated with that of the parents. Therefore, I suggest that if he accepts the principle in regard to income tax he cannot deny the same principle when it comes to the CTT. He must be logical. Either he must revert to the former dispensation with regard to the treatment of dependent children's income, and not aggregate it, or, if he stands by his views on aggregation, he must apply the same principle by granting at least a lower rate of capital transfer tax than he is now proposing down to the next generation.
Let me encourage the right hon. Gentleman. If he follows my suggestion he is not selling out his principles. Let me comfort him by reading the words of one of the father figures of the European Socialist movement, Pierre Joseph Proudhon, who said:
The aim of the legislator is not to abolish, but to realise for everyone three things which are intertwined: marriage, family and property. Moreover, in the interests of the family there must be inheritance, for without inheritance there can be neither husbands nor wives, neither ancestors nor descendants. There must be inheritance because the family ought never to perish.
I give the Chancellor that little encouragement, which is in the Socialist tradition.
My fourth objection is that the suggested rates of tax are far to high when we take into account the withdrawal of the 45 per cent. relief for agriculture and business assets and the liability to capital gains tax.
We must also consider the effect of the high rates of income tax, capital gains

tax and capital transfer tax and the eventual wealth tax. I support the views expressed by the hon. Member for Birmingham, Ladywood (Mr. Walden) and by my right hon. Friend the Member for Farnham that it would be better for the Select Committee to look at the whole world of wealth and capital gains tax and determine on that, and construct around it an appropriate transfer tax. That would be the logical sequence. It would resolve the question of what wealth is owned in this country and where it is distributed. There is a great deal of doubt on the validity of the figures presented to us.
The next objection to the present tax is that it does not encourage saving. Even the most trusted of the Marxists amongst us would agree that we must now maintain as high a level of savings as we can. I have never regarded the concept of conspicuous consumption as being synonymous with the good society. As my right hon. Friend the Member for Farnham pointed out, the new tax proposed in Part III of the Bill, and spelt out in Clause 17, will encourage spending rather than saving.
I oppose the withdrawal of relief from agriculture and business assets. Agriculture and forestry have been touched upon already, but only my right hon. Friend the Member for Finchley has talked about the business side.
I declare a non-interest. I own no family businesses and, as far as I know, I have no expectations. Personally, I am neutral. But, professionally, I am an industrial consultant, and in my working life I have come across all sizes and shapes of companies, State-owned and privately-owned. As long as we run our mixed economy, it is important economically to maintain a reasonable number of small, independent family businesses. Socially, they are a great deal more important. The large, management-run international corporations are supine compared with the spirit found in small family companies. But small family companies are disliked by the Government. They stand up to the Governments, and sometimes they tell them to go to hell. Increasingly, one comes to the conclusions that many Governments ought to go.
There is also the point made by my right hon. Friend and by one or two


others of my hon. Friends. When we talk of handing over a firm, a family business or a trading concern to the next generation, it is not handed over to be spent. It is handed over as a trust. I believe that most property is morally a leasehold for the tenancy of one's lifetime. I am old-fashioned enough to believe that everyone should hand on to the next generation more than he has received. It is not to be dissipated. It is not for high consumption.
The Chancellor of the Exchequer would improve his tax greatly if he began to distinguish between the nature of assets. I should be happy if he taxed the transfer of money more severely, but I think of farms, woodlands and businesses as going concerns.
I cannot support any capital tax which is not indexed. There is a big difference between capital taxes here. Under Governments of both major parties, I have consistently endeavoured to move amendments to Finance Bills to get chargeable gains under the capital gains tax indexed. Increasingly, with the present rate of inflation that we have, the capital gains tax is purely a tax on inflation. I am in favour of a capital gains tax on real gains. I apply the same analogy to indexation when it comes to the exemption limits and the various scales which the Chancellor of the Exchequer is introducing.
I also raise a question about the treatment proposed for discretionary and accumulated settlements. In my view it is quite wrong, because there is a great element of retrospection in it. Reading through the provisons of Clause 9 and Schedules 5, it is difficult to escape the conclusion that the Government regard such settlements as being anti-social or that they do not know how such settlements work.
When they were made, all existing settlements would have been executed in accordance with the laws existing at the time, and a sizeable number will have been made in the last century. Now the Government propose to upset those settlements by means of retrospective legislation. The period charge every 10 years at 30 per cent. would be a vicious penalty on settlements made many years ago.
Incidentally, I believe that the Government's proposals for this tax go hard

against the spirit of the Perpetuities and Accumulations Act of 1964, and I draw attention especially to Section 13. This is a point which I would develop in more detail if I were a member of the Standing Committee. However, I leave it there. This pillaging of the dead is a distasteful act in what will be a distasteful tax.
I object strongly to the necessity that returns should be made of all gifts, including exempt gifts. Unless the Government introduce some de minimis rule in respect of returns and an exclusion rule for exempt gifts, the subsequent administration and the monitoring of this tax will be a great burden to the Revenue and a permanent irritant to most taxpayers, who will be below the tax threshold. As a result, relations between the taxpayer and the tax gatherer will be unnecessarily embittered for no real gain to the public purse.
I have tried to outline some of my objections to the new tax. I will not weary the Committee by enumerating more. There are many more, but the eight that I have mentioned should suffice to show the Committee that the Government have missed a great opportunity of introducing a socially just and economically sensible capital transfer tax. In fact, the tax meets the demands neither of social justice nor of economic sense, and does not even fulfil the criteria of the Marxist Valhalla that certain hon. Members below the Gangway would like to see. It is a tax suitable only for the rat race society and not for the good society.

1.0 a.m.

Mr. Sillars: I shall not take a great deal of time because I do not want to stop the Conservative Party continuing in their defence of their basic interests.
After having sat here for some time, I am convinced that we are not discussing a marginal matter. We are talking about the Labour Party fulfilling its manifesto pledge—

Mr. Gorst: rose—

The Chairman: Order. We can have only one hon. Member on his feet at a time.

Mr. Sillars: The middle class will have to listen to the working class for at least a few minutes more.
We are talking about the Labour Party's commitment to fulfil its manifesto pledge to shift the balance of wealth and power in society towards the working people and their families. This tax will do it effectively, and that is why so many Conservative Members are still here at this late hour.
I say to the right hon. Member for Finchley (Mrs. Thatcher) that very few miners, dustmen, postmen or dockers—the people who produce and distribute the products which give us the wealth in this society—will shed tears when one of the consequences of the tax is that a father will have to hesitate before giving his daughter a gift of £5,000 on her wedding day. That remark shows how out of touch she is with modem society and the needs of the majority of the people.
I went a long way with some of the comments of the hon. Member for Moray and Nairn (Mrs. Ewing) about the rôle of the Forestry Commission. I, too, regret that it has not purchased compulsorily an acre of land in Scotland. Another example is the Highlands and Islands Development Board, which was given such powers many years ago and has not used them. She made a fair point when she said that many people in the industry are employed by the industry because of events over which they had no control.
I served on the last Select Committee on Scottish affairs, about two years ago, when we considered land use. One of the objections to private forestry interests is that they can buy up any land and plant it because there is no planning provision to prevent it. We asked the representatives of the Economic Forestry Group whether private forestry would continue if we removed the tax provisions which took them into the field in the first place. They said "It could not be done; it is not on."
Because of the lack of action by Governments of both political complexions over a number of years, we have State and private forestry. If we change the taxation process—and make no mistake, I want to change it—we produce a serious problem for the people who are employed in the industry. They are working people. They are not like

the two hypothetical graduates whom the right hon. Lady the Member for Finchley mentioned earlier, one of whom, on leaving university, saves and the other spends, one becoming rich while the other goes through life spending. Forestry workers do not get enough money to accumulate enough wealth to see them through difficult times.
The Labour Government, therefore, have to accept that we have an obligation to the working people in forestry to ensure that while we are sorting out the tax fiddles of the rich, the working people in forestry do not pay far too heavy a price.
The hon. Member for Dumfries (Mr. Monro) earlier repeated the nonsense that there could be another clearance in Scotland. It comes ill from Conservative hon. Members to refer to the Highlands clearance or any other clearance. The Highlands clearance is a highly emotive subject in the minds of people in Scotland, but, as many hon. Members know, we have had many other clearances from Scotland. Not so long ago it ran at the rate of 40,000 a year from our industrial areas, and the people principally responsible were the hon. Member for Dumfries and his hon. Friends in the Conservative Party. I am not taken in by that scaremongering talk about clearances.
We have a problem in the rural areas concerning pockets of 10, 12 or 20 men in constituencies such as mine. I will give an example of some of my constituents in a place called Dalmellington, which has roots in the mining community. They were arguing for their right to work, not for the right of a rich man to dodge his tax responsibilities. They pointed out that they are engaged in planting, not in felling, and that if the planting ceases because of the changes in the taxation system they are faced with an employment problem.
I accept that there is some way to go before this Bill becomes an Act and the consequences which will flow, but it is incumbent upon the Government to look after the work people. There are not many of them left in my part of the country but one working person is entitled to as much respect and concern from a Labour Government as are a thousand rich people.

Mr. Healey: I wonder whether it would be convenient to the Committee if I were to intervene at this stage—[HON. MEMBERS: "No."]—simply to deal with four issues which have been raised in many of the speeches—

Mr. Cormack: On a point of order, Mr. Thomas. This is the only opportunity that the whole Committee has to debate this crucial new tax. While we obviously wish to hear what the Chancellor has to say, it would not be fair for him to say it until more of us have had an opportunity to speak.

The Chairman: The Committee has been discussing this question for exactly three hours. [An HON. MEMBER: "Not long enough."] It may well not be long enough. I am not bringing the debate to an end. I am only calling on the Chancellor to speak, and I have called him.

Mr. Gorst: Further to that point of order, Mr. Thomas, could you give us some guidance on whether it will be possible for you to call the Chancellor of the Exchequer for a third time in this debate, because there will be many other points which will arise on which we would like his guidance?

The Chairman: I am much obliged for the advice, and it will be borne in mind.

Mr. Healey: Thank you, Mr. Thomas. It was my intention to ask leave to speak again later in the debate, but it would be useful if I could intervene at this time to deal with four specific matters which have been raised many times on both sides of the Committee, because it might be helpful to hon. Members who wish to follow me. Those matters are woodlands, agriculture, charities and historic houses.
I greatly welcome the moderate and temperate tone in which contributions have been made on these four matters. On some other matters, tempers have run perhaps a little higher, but on these I have listened with the greatest care to what has been said. I should like at this stage to tell the Committee the conclusions I have come to after listening to the speeches from both sides.
The issue of woodlands is clearly—and I confess to a little surprise here—more deeply felt than perhaps any other single

issue which has so far been discussed, because representatives of six parties in this House have asked me to look again at this problem. I shall take their representations very seriously and will see what can be done. They will not expect me to announce new decisions tonight, but I hope to come to this later in the Committee stage.
On the treatment of small farmers and agriculture, there has been a genuine misunderstanding of the effect of the proposed measures, with the changes I have already agreed on the small family farm. The hon. Members for Moray and Nairn (Mrs. Ewing) and Caernarvon (Mr. Wigley) both raised this issue.
We shall be able to show later in Committee in detail that in the case of legacy and death the small farm will be better treated with the new calculation of value than by the 45 per cent. relief, but I recognise that the value of the new calculation of value will be reduced if land prices, as most of us I am sure hope, fall, and I can give an assurance that if that is the case, we shall readjust the basis for valuing those farms so that they still enjoy the advantage they enjoy with land prices at their present level under the provisions we have made.
There is deep feeling on charities—

Mr. Evelyn King: We have heard gratefully what the Chancellor has said about the small farmer, but will he say a word about the land owner, because in agriculture the greatest difficulty is with the tenant farmer and there can be no tenant farmer unless there are land owners willing to let land to him? If the land owner has his estate smashed, the tenant farmer will suffer because the owner will have nothing to offer him.

Mr. Healey: This has not been referred to in detail, although it was referred to in passing. We shall discuss in Committee the liability of an owner to provide capital for tenants, and I prefer to make no further comment at this stage. However, I know that there is strong feeling in all parts of the Committee on the position of the working farmer and the small family farm, which is a strong feature of agriculture in Scotland and many other parts of the country. I have given an assurance which we shall seek to carry further later in the Committee stage.
On charities, only two hon. Members have spoken, both from my side of the Committee, and they are an exceedingly formidable combination—my hon. Friend the Member for Welwyn and Hatfield (Mrs. Hayman) and my hon. Friend the Member for Birmingham, Ladywood (Mr. Walden). I listen carefully to what they say and I am very attracted by their advice, but there is a problem which previous Chancellors have found intractable, the genuine problem of finding a way to define a charity for tax purposes to avoid opening loopholes unnecessarily. However, I take the point raised by my hon. Friends, that we must not make comparatively small matters the enemy of justice in comparatively large ones. I had it in mind that my right hon. Friend the Chief Secretary should be able to announce very important concessions at a later stage, but I cannot go further at this stage. However, I take the point raised by my hon. Friends.
The final point on which I do not think we need to have a party battle, because there is concern on both sides of the Committee about it, was raised by my right hon. Friend the Member for Vauxhall (Mr. Strauss) and the hon. Member for Bristol, West (Mr. Cooke). This was the question of historic houses. I share the objectives which they put forward, and I am interested in and will study their suggestion that it should be possible to make use of this tax in order to make the artistic and cultural heritage of the country in these houses more widely available to the public. The last thing I want is for the tax to operate in such a way that this vital national heritage is dispersed rather than made available.
If we were to move in the direction they suggest we should require not only an assurance of reasonable public access but guarantees against disposal of the contents of the houses, because the value of the house consists quite as much in the ability to see the contents in situ in their historic position as in the architecture itself. I shall look at the sort of proposals which have been put forward in this regard, and I hope that I or my right hon. Friend will be able to announce some decision on the matter later in Committee.

Sir David Renton: Does the Chancellor accept the view of one of his predecessors, Sir Stafford Cripps, that the value of these houses as part of the national heritage and as places to be visited by the public is greatly enhanced when they are able to be lived in, and will he bear that in mind in considering the incidence of the tax?

Mr. Healey: I accept that, but the question is always who lives in the houses and who visits them. I have some experience of this matter because I have a deep personal human interest in these problems, and I have seen how the matter has been dealt with in a number of other countries. However, I share the objectives expressed by my right hon. Friend and the hon. Member, and I hone that we can find a means of reconciling those objectives with the main purposes of the tax.

Mr. Robert Cooke: If the Chancellor has time to read my speech in the Official Report he will see that I dealt with the question of the contents of these houses, and I made the point that all the amenity societies that I cited wanted to preserve the continuity of private ownership and the sharing with the viewing public. This will be possible only if the right hon. Gentleman follows some of the suggestions I made in my speech.

Mr. Healey: I hope that it will be possible to reach a decision on this matter and to announce later in Committee a solution which will be satisfactory to all.

Mr. John Peyton: I beg to move,
That the Chairman do report Progress and ask leave to sit again.
I am encouraged in asking you to accept this motion, Mr. Thomas, by the very reasonable and restrained nature of the Chancellor's last remarks to the Committee. I understand that it is difficult for a Chancellor faced with his third Finance Bill in a year always to preserve the calm that the right hon. Gentleman has preserved. But such important issues should not be buried
darkly at dead of night.
I will not continue with that quotation, because it would obviously be difficult for all of us.
The right hon. Gentleman has referred briefly to four important points. One is woodlands, which are crucial, and about which many people feel deeply. This issue has not been explored sufficiently. The others are agriculture—where there will be a considerable effect on family farms—historic houses and charities. The right hon. Gentleman did not refer at all to the smallish companies, which are crucial in an economy which must develop.
New taxes are often conceived in unreality, if in nothing worse. The parentage of new taxes is often more ghastly than mere unreality, but I am, as always, disposed to charity, and so I am prepared to concede that the tax we are discussing was conceived largely in unreality and that the more odious parents were excluded.
This is the third Finance Bill in a year, as I have reminded the Committee—

Mr. Healey: Wrongly.

Mr. Peyton: Within the 12 months. [Interruption.] Well, the Second Finance Bill, but—I am not particularly concerned with the nomenclature of these horrible measures—the third time the Chancellor and his colleagues have had to put to Parliament measures of which we cannot wholly approve.
On behalf of the Opposition side of the Committee, I wish to offer to the Chief Secretary to the Treasury the maximum of compliment possible. We admire his persistence rather more than his receptiveness of our arguments. Without, I hope, unduly embarrassing him, I warmly endorse the remarks of the hon. Member for Birmingham, Ladywood (Mr. Walden), who is distinguished for his courage in a House which frequently lacks that quality.
I hope that the Chancellor will respond in the manner in which I have moved the motion, and accept it as a reasonable proposition at this hour of the night.

Mr. Healey: I thank the right hon. Gentleman for recognising that it might be a mistake to bury the clause
darkly at dead of night",
and, as I understand it, for congratulating me on not turning any sods with my bayonet, at any rate in the intervention I have just made.
I recognise that the clause means perhaps the most important single change in tax policy since the war. The attendance on the Opposition benches bears out the remarks of one of my hon. Friends about some of the aspects of its importance.
I should like to accept the motion, but I hope that if I do so the right hon. Gentleman can give an undertaking, and that his hon. Friends will support it, that the Opposition will seek a fairly early end to this discussion tomorrow afternoon, and that we can conclude the whole of the business put down for the third day in Committee of the whole House during tomorrow's sitting. I think that that is a reasonable request to make. Otherwise I am afraid that I shall have to insist that we continue our discussion.

Mr. Peyton: The right hon. Gentleman has responded in a reasonable fashion. I think that we can certainly agree that we can settle this matter during the course of tomorrow's business. But when we come to decide what is "reasonably early" I believe that the Committee must settle that for itself. Many of my hon. Friends have strong views on the clause, and they cannot be expected to be confined to a set period. But I am sure that my hon. Friends are reasonable. If I cast my mind back to the years when the right hon. Gentleman and his hon. Friends were in Opposition, I am ready to concede that my hon. Friends will be ready to be confined within the boundaries of what they then considered reasonable.

Mr. Healey: I find some difficulty in chasing every divagation in the right hon. Gentleman's last sentence. I shall attempt to put the matter as I understand it. This is a critical point. I recognise that, because of the importance of the clause, it would be unfair to deny Members who feel strongly about it the opportunity to express their views. However, I hope that they will seek to do so at reasonable length. I am not insisting on five-minute speeches or anything like that. The essential assurance that I wish to receive is that however long the clause takes—I hope it will not take overlong although I recognise that it is not easy to agree on a definition of that adjective—we can at least finish the business which was agreed through the usual channels in the course of tomorrow's resumption. That is the central point.

Mr. Peyton: From this side of the Committee I could not possibly resile upon an undertaking to finish the business in tomorrow's sitting. However, I would not wish to stipulate a time at which the discussion on the clause should end.

Mr. Healey: I understand that there is strong feeling on this side of the Committee, and I also have strong feelings. In many respects I should like to continue now. However, in the light of the assurance which the right hon. Gentleman has given I accept his motion.

Question put and agreed to.

Committee report Progress; to sit again this day.

ADJOURNMENT

Motion made, and Question proposed, That this House do now adjourn.—[Mr. Pavitt.]

Orders of the Day — M16, WALTHAM CROSS-BRENTWOOD

1.30 a.m.

Mr. R. A. McCrindle: It may seem ironic that the aim of my Adjournment debate this evening should be to encourage the Government to proceed with the motorway programme at the same time as many hon. Members in different parts of the House are suggesting that the Government should do exactly the opposite. Tonight I am pressing the Government for the earliest possible start to the stretch of the M16 running from the Thames to Brentwood. Those other right hon. and hon. Members who are pressing upon the Government that the motorway programme should be substantially reduced are doing so on economic grounds.
I make it clear that I understand the need to curb public expenditure. I understand, too, that the road development programme is an obvious candidate whenever a curb on Government expenditure is suggested. I suggest to the Minister that motorways cannot be seen in purely economic terms. Tonight we should be considering the environmental factors involved with this stretch of motorway as well as the economic issues.
I submit that by any test, economic or environmental, this particular stretch of motorway is not only justified but long overdue. I take first the economic argument. I contend that if this stretch of the M16 were to be built a considerable saving of time would result in conveying goods from Tilbury to the North. This would be particularly so if, as a result of the development of this stretch of the M16, the notorious bottleneck through the town of Brentwood were removed. So much for the economic justification for proceeding with this stretch of motorway.
From the environmental standpoint I submit that a reduction in noise and atmospheric pollution and an end to the veritable terror in which local residents live at the moment would make this a justifiable proposition. In case the Minister thinks that I exaggerate when I refer to "the veritable terror in which local residents live" I invite him to come to my constituency some time in the near future and attempt to cross the present A128 road at a rush hour on any weekday. If he were to do that I am sure that he would agree with me that any measure that can be contemplated to relieve the pressure upon the citizens of Brentwood is very much to be recommended.
The history of this problem dates, I suppose, particularly from the opening of the Dartford Tunnel. In retrospect it can be said that the tragic mistake was to encourage heavy traffic to use the tunnel without adequate access roads on the Essex side. Now my constituents read that a second Dartford Tunnel is proposed. The fear with which they look forward to that can be imagined.
At the moment from the Dartford Tunnel enormous juggernauts use what in parts is really no more than a suburban road, striking terror into the hearts of residents. In the process the beautiful and attractive villages of Herongate and Ingrave have been almost completely destroyed. If the Minister adds to this the existence of two schools, with children spilling out on to the A128 in the heart of Brentwood, I am sure that he will understand why my constituents are impatient for this stretch of motorway to proceed.
The Minister will know, from correspondence I have had with him, of the recent outcry which took place as a result of one of these heavy vehicles killing a 16-year-old boy. This has led to the formation of the vociferous A128 Action Group. I must say how disappointed those of my constituents who formed this group were when the Minister felt unable to receive a delegation to press upon him the need for this part of the M16. I accept that nothing that was said could have increased the urgency of the M16 in the Government's mind. Nevertheless, my constituents feel that there has been some buck-passing from the Department of the Environment to the county council, which we are told is the responsible authority. We accept that in regard to the A128, but the county council in turn has passed on the buck to the Brentwood District Council for extensive preliminary inquiries before coming to any conclusion.
All these are acceptable and democratic procedures, but they add to the frustration of the people of the area. I ask the Minister on behalf of my constituents to come as close as he can to giving a clear and specific date for the starting of this section of the M16. I also ask him to assure us that if there is to be any economy drive by the Government, and if there are to be cuts in the motorway programme, as far as lies within his power and for the impelling reasons I have placed before him this section of the M16 will not suffer.
I conclude by reminding the House that I also represent Ongar, and here, too, there is a strong case for a further section of the M16 to proceed. I am aware that the democratic processes—sometimes I wonder whether they are not over-democratic processes—are going forward on this stretch, so I merely express the hope that by about 1977 both Brentwood and Ongar will be bypassed by the M16. Only when that is the case will my constituents be able to go about their business free of fear of the heavy traffic which so many of them experience.

1.38 a.m.

Mr. John Biggs-Davison: I am glad that my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) spoke as he did. I used to represent Ongar, and if the M16 is

completed it will practically cut through the garden of my cottage, which is just over our common frontier.
I have only one thing to say on behalf of my constituents, many of whom sympathise with what my hon. Friend said, and that is that where and if the M16 in any way infringes the sanctity of Epping Forest it must go underneath.

1.39 a.m.

Mr. Norman Tebbit: After the able and persuasive speech made by my hon. Friend the Member for Brentwood and Ongar (Mr. McCrindle) it would not be right for me to detain the Minister for more than a few moments.
The importance of the M16 to Chingford is great. The road will affect the lives of millions of people who live in the north-east sector of London, lives which are made miserable and dangerous by heavy traffic which travels through Chingford and along King's Head Hill. I accept that that does not relate precisely to the section of the road which is the concern of my hon. Friend but for certain sections of the road to be built and others to be omitted would be monstrous madness. The traffic would be encouraged along a section of the motorway and would then splurge out again through village and countryside.
Much as I understand the anxieties of those whose lives will be affected adversely by this road, I urge the Minister—for the greater good of the greater number, and particularly the millions who live in North-East London—to proceed as rapidly as possible with all sections of the road.

1.40 a.m.

The Under-Secretary of State for the Environment (Mr. Neil Carmichael): I am grateful to the hon. Member for Brentwood and Ongar (Mr. McCrindle)—and also to his hon. Friends the Members for Epping Forest (Mr. Biggs-Davison) and Chingford (Mr. Tebbit) for their contributions—for taking this opportunity to speak about the importance of the M16 motorway, which goes through the area he represents. The hon. Gentleman made points which were both short and succinct. In particular, he drew attention to the congested traffic conditions on the existing A128 and stressed the need for the early construction of the M16 to relieve


this road. The hon. Member for Chingford also emphasised that point.
The proposed M16 forms part of the projected London orbital road, and, for the benefit of hon. Members who may not be familiar with the sections into which this road is divided, I may say that the part of the proposed M16 to which this debate primarily refers is that between the A10 at Waltham Cross and the A12 at Brentwood. Draft proposals to establish the route of the M16 motorway between the two points were published in November 1973 and draft proposals for the necessary alterations to side roads and other related matters were published in June 1974.
A public inquiry into objections to these proposals opened at Epping under an independent inspector on 3rd December 1974. It is still in progress and seems unlikely to be concluded before April. In these circumstances I am sure that hon. Members will appreciate that it would be impossible for me to discuss either the merits or demerits of any of those proposals at the present time while the inquiry is taking place.
However, in the context of the point which the hon. Member has made about the need for this part of the M16, I think that other hon. Members may find it useful if I read to them part of my right hon. Friend's general statement of policy which was issued before the public inquiry into part of the road began. This said, among other things, that Government policy was

"1. In accordance with statements made in Parliament in June 1971 and endorsed by subsequent administrations, to create a national network of trunk roads adequate for the economic needs of the nation, linking major centres of population and industry, ports and airports.
2. To improve environmental conditions by removing congestion and, where practicable, by diverting long distance traffic, and particularly heavy goods vehicles, from towns and villages onto roads suitable for them: and to build roads to standards that will minimise the risk of accident and injury."

That was a point stressed by all contributors to the debate. It continued:
3. As part of these requirements, to create an orbital road around London, relieving traffic congestion in the Greater London area, by allowing through traffic to skirt the periphery of London. These two schemes, from the A10 to the A12, in conjunction with other sections from the A1 to the A10 and from the A12 to the Dartford Tunnel will provide an important segment of such a route.

Hon. Members may be aware that when the inquiry first opened certain objectors made submissions to the inspector which they requested should be transmitted to the Secretary of State. One of these acknowledged that the Government's general underlying policies with regard to transport were not a matter for consideration at the public inquiry but contended that objectors did not know how the proposed M16 fitted in with them.
My right hon. Friend has responded to this by addressing a statement to the inspector holding the inquiry. In this, my right hon. Friend commented that the objectors should have referred to the policy statement which I have already mentioned, and should have waited until counsel for the Department opened his case at the inquiry, in the course of which he cited reports and ministerial statements to show that the construction of an orbital road for London had been the policy of successive Governments for many years, and that its construction as part of a national network of roads, itself part of a wider transport strategy, was the policy of the present Government.
My right hon. Friend went on to say that he had been further informed that counsel and witnesses called by him explained the importance of the proposed M16 as part of the orbital road and also by itself, because of the traffic which would use it and the relief which it would afford to other roads. If objectors had studied his statement and listened to the presentation of the Department's case, they could not have been in any doubt as to what Government policy was, nor how the M16 proposal fitted into that policy. I may therefore assure the hon. Member for Brentwood and Ongar that the construction of an orbital road for London remains firm Government policy.
I have spoken so far of the length of the proposed M16 from the A10 at Waltham Cross to the A12 at Brentwood. South of Brentwood, proposals for the section of the M16 from the A12 to the A13 were published in draft in December 1972, and were the subject of a public inquiry between June and September 1973.
My right hon. Friend has recently announced that he has decided to accept in principle the line of this part of the


motorway as published, subject to consultation with objectors and other interested parties, with a view to moving the route slightly further away from Cranham and to examination of the possisibility of providing a small and less obtrusive interchange with the A127 at Codham Hall. As I have already informed the hon. Member in answer to a Question which he asked in November, it is hoped that work on this part of the M16 can begin in the financial year 1976–77, subject to the satisfactory completion of the statutory procedures and the availability of funds at the time.
In the course of his speech the hon. Member spoke of the need for the construction of the M16 in order to provide relief for the existing A128, which runs from Chipping Ongar through Brentwood to Tilbury. I agree entirely that the A128 needs relief so that the accident record can be improved.
The hon. Gentleman then went on to ask whether, pending the construction of the M16, something could be done to improve this road. I have great sympathy with him, but this is not a trunk road and not, therefore, a road for which my right hon. Friend is directly responsible. I am informed that Essex County Council, which is the local highway authority, has asked Brentwood District Council, which acts as its agent, to let it have any practicable proposals for reducing traffic dangers on the road.

Although this appears to be a complicated way, I think that it is the only way to do it where a local authority is deeply and closely involved in the matter. I am sure that both councils will regard the investigation of possible remedial measures as a matter of urgency.
I assure the hon. Members that I fully appreciate the importance of the M16 to Brentwood and to the whole North-East of London, and reiterate the Government's commitment to the provision of an orbital road for London, of which it is proposed that this road shall form part.

Mr. Biggs-Davison: Will the Minister also say that he attaches great importance—I know that he does—to what I said about Epping Forest?

Mr. Carmichael: Yes, I do. I have spoken to the hon. Gentleman earlier about this. However, as the matter of Epping Forest and the M16 as it affects Epping Forest is the subject of a public inquiry into the published line, I am sure that the hon. Gentleman is too experienced not to appreciate that it would be quite wrong of me in this case to make any remark which perhaps could prejudice the discussion at the public inquiry that is proceeding.

Question put and agreed to.

Adjourned accordingly at ten minutes to Two o'clock.